'"eg 


University  of  California. 

Gl  FT    OF 

...). XScZSMS/^ LhJe-i 1aj^6ju6A*&A4«Li!*. (Lgj 

Ctes 


i 


LECTURES 


ON 

Life  Insurance 

Volume  I. 

Being  Lectures  and  Addresses  Delivered  by 

JOHN  M.  HOLCOMBE 

President  of  the  Phoenix  Mutual  Life  Insurance  Company 


UN1VERSITY  j 


HARTFORD,  CONN. 
1908 


^t^ 


§d*fy<p&ru*~f>    /,«  vk-» 


PREFACE 


For  a  long  period  the  beneficence  of  life  insurance 
was  so  evident  that  people  accepted  truisms  as  truisms  and 
came  to  insure  their  lives  without  troubling  to  analyze  the 
system.  As  time  went  on,  however,  and  a  multiplicity  of 
forms  of  life  insusance  was  developed  to  meet  special  de- 
mands on  the  part  of  a  few,  comparatively  speaking,  the 
fundamental  principles  became  clouded  in  the  minds  of 
many.  Life  insurance  remains  a  benefaction  and  has  pro- 
gressed with  the  times.  Fortunately,  for  one  cause  and 
another,  the  people  have  become  more  inquisitive  concerning 
it  and  are  seeking  exact  knowledge  as  to  what  it  purports  to 
do  and  the  way  in  which  it  does  it,  in  the  most  straightfor- 
ward fashion. 

It  is  in  recognition  of  this  most  encouraging  attitude  on 
the  part  of  the  public  that  the  recent  lectures  and  addresses 
of  President  John  M.  Holcombe  of  the  Phoenix  Mutual  Life 
Insurance  Company  have  been  collected  and  put  in  book 
form.  They  take  up  every  phase  of  the  great  system  in 
itself  and  in  its  relations  to  mankind  in  all  their  conditions 
and  requirements. 

This  volume  will  be  followed  by  others,  hopefully,  all 
published  in  connection  with  the  Educational  Department 
of  the  Company,  which  aims  specifically  to  train  agents  in 
the  right  line  of  thinking  and  acting,  for  the  good  of  the 
public  as  well  as  of  themselves ;  since  inasmuch  as  the 
public  is  now  bound  to  get  its  information,  the  men  who  offer 
life  insurance  also  must  have  it  in  a  more  complete  form 
than  ever  before. 

Acknowledgment  is  made  of  the  courtesy  of  the  Yale 
Alumni  Weekly  in  permitting  the  use  of  the  first  three  of 
these  lectures  from  its  "  Yale  Insurance  Lectures,  Volume  I.," 
copyrighted. 


THE  EDITOR. 


173081 


v    OFT„, 
UNIVER; 

OF 


OBSERVATIONS  ON  INSURANCE  HISTORY 
DEFINITION  OF  AN  INSURANCE  POLICY 


(Delivered  in  Yale  University  Course) 


A  POLICY  of  insurance  is  essentially  a  contract 
"^  for  indemnity  and  not  for  profit,  and  its  object 
is  to  relieve  the  individual  from  the  heavy  weight 
which  would  fall  upon  him  through  no  fault  of  his, 
by  distributing  the  burden  over  the  community. 

Insurance  is  a  contract  whereby  one  for  a  con- 
sideration undertakes  to  compensate  another  if  he 
shall  suffer  loss.  All  that  is  requisite  to  constitute 
such  a  contract  is  the  payment  of  consideration  by  the 
one,  and  the  promise  of  the  other  to  pay  the  amount 
of  loss  agreed  upon  in  the  contract  to  the  person 
entitled  to  claim  it,  upon  the  happening  of  the  con- 
tingency contemplated  in  the  contract. 

It  had  its  origin  in  the  necessities  of  commerce, 
it  has  kept  pace  with  its  progress,  expanded  to  meet 
its  rising  wants  and  to  cover  its  ever  widening  fields, 
and  under  the  guidance  of  the  spirit  of  modern  enter- 
prise tempered  by  a  prudent  forecast,  it  has  from 
time  to  time  with  wonderful  facility  adapted  itself  to 
the  new  interests  of  an  advancing  civilization. 

It  is  applicable  to  every  form  of  possible  loss. 
Wherever  danger  is  apprehended  or  protection 
required,  it  holds  out  its  fostering  hand  and  promises 
indemnity.  This  principle  underlies  the  contract,  and 
it  can  never,  without  violence  to  its  essence  and 
spirit,  be  made  by  the  assured  a  source  of  profit,  its 
sole  purpose  being  to  guarantee  against  loss  or  danger. 
"Though  based  upon  self-interest,"  says  De  Morgan, 
"yet  it  is  the  most  enlightened  and  benevolent  form 
which  the  projects  of  self-interest  ever  took.  It  is 
in  fact,  in  a  limited  sense  and  a  practicable  method, 
the  agreement  of  a  community  to  consider  the  goods 


6  LECTURES  ON  LIFE  INSURANCE 

of  its  individual  members  as  common.  It  is  an  agree- 
ment that  those  whose  fortune  it  shall  be  to  have  more 
than  average  success  shall  resign  the  overplus  in  favor 
of  those  who  have  less.  And  it  has  as  yet  been  applied 
only  to  the  reparation  of  the  evils  arising  from  storm, 
lire,  premature  death,  disease  and  old  age,  yet  there 
is  no  placing  a  limit  to  the  extensions  which  its  appli- 
cation might  receive  if  the  public  were  fully  aware 
of  its  principles  and  of  the  safety  with  which  they 
may  be  put  in  operation." 

There  exists  in  the  minds  of  many  a  distinction 
between  insurance  on  lives  and  insurance  on  visible 
property,  on  the  ground  that  the  former  is  simply  an 
agreement  to  pay  a  fixed  and  arbitrary  amount  at  the 
death  of  the  insured,  without  reference  to  any  actual 
damage,  and  the  latter  an  undertaking  of  indemnity 
for  loss.  This  distinction  is  not  based  upon  a  true 
comprehension  of  the  real  principles  which  underlie 
the  policy  of  life  insurance.  In  the  one  case  the  thing, 
the  loss  of  which  is  made  good  or  modified,  is  capital 
which  produces  income,  and  in  the  other  it  is  a  life 
with  physical  and  mental  vigor  sufficient  to  produce 
an  income  over  and  above  the  cost  of  subsistence. 
Many  lives  do  not  possess  these  qualities,  and  it  is  only 
with  those  which  do  that  life  insurance  in  its  legitimate 
field  has  to  deal.  The  termination  of  a  life  which  can 
produce  a  surplus  income  inflicts  a  loss  upon  some 
one,  and  the  greater  the  probable  length  of  such  pro- 
duction, the  greater  the  loss  must  be. 

It  is  clear,  therefore,  that  before  the  insurer  can 
fix  the  sum  to  be  received  for  the  agreement  to  pay 
some  amount  at  an  indefinite  future  time,  he  must 
not  only  know  the  time  when  his  promise  must  be  ful- 
filled, but  he  must  be  sure  that  the  life  upon  which  it 
is  predicated  belongs  to  the  class  from  which  his  cal- 
culations have  been  drawn. 

A  mortality  table,  therefore,  necessarily  preceded 
all  contracts  involving  the  length  of  a  human  life. 
The  practice  of  registering  births  and  deaths  is  a  very 
ancient  one,  so  ancient  indeed  that  no  record  remains 
of  what  people  first  attained  that  degree  of  civiliza- 
tion which  must  precede  the  adoption  of  a  plan  only 


LECTURES  ON  LIFE  INSURANCE  7 

possible  in  a  stable  and  enlightened  community.  It 
is  probable  that  records  of  this  kind  were  kept  by 
the  early  inhabitants  of  Asia  and  Africa,  but  it  was  in 
Rome  that  the  first  occasion,  of  which  there  is  any  au- 
thentic knowledge,  arose  for  a  reliable  measure  of 
the  probable  future  lifetime  of  persons  at  various 
ages. 

At  the  time  of  the  reign  of  the  Emperor  Alex- 
ander Severus  in  the  third  century,  it  had  been  a  cus- 
tom of  Roman  testators  to  bequeath  to  legatees  pro- 
vision for  life,  but  by  the  Falcidian  law  such  legacies 
were  prohibited  from  encroaching  upon  the  one-fourth 
of  the  estate  resulting  to  the  heirs-at-law.  To  carry 
out  this  law,  some  estimate  of  life  duration  of  the 
legatees,  one  with  another,  from  a  given  age  had  to 
be  formed.  The  Roman  census  enumerated  ages  of 
population  and  Rome  had  bills  of  mortality,  and  it 
was  no  doubt  from  these  that  the  great  jurist  Ulpian 
constructed  a  table  which  gives  evidence  of  much 
skill  and  discrimination.  Its  results  are,  under  the 
circumstances,  remarkably  close  to  those  reached  some 
fifteen  centuries  later,  when  Dr.  Price  classified  and 
moulded  into  a  mortality  table  the  registration  of 
persons  living  and  dying  in  Stockholm  from  1755  to 
1763  (which  seems  to  have  been  the  first  accurate 
deduction  ever  made  of  the  length  of  life  in  a  city). 

At  age  30  the  Roman  expectation  of  life  was  about 
25  years,  and  by  Dr.  Price's  table  about  22  years ;  at 
50  the  Roman  table  gives  10  years  expectancy,  Dr. 
Price's  14  years,  and  at  60  the  former  shows  7  years, 
the  latter  10  years. 

A  careful  and  accurate  record  of  births,  deaths 
and  marriages  has  been  kept  in  the  city  of  Geneva, 
Switzerland,  since  1549,  and  is  the  oldest  continuous 
register  of  this  kind  now  extant.  Many  other  similar 
records  were  established  in  different  countries,  but  it 
was  not  until  the  beginning  of  the  seventeenth  cen- 
tury that  they  were  general  in  Europe.  Their  adop- 
tion was  no  doubt  the  result  of  public  necessity. 

During  the  middle  ages  the  ravages  of  war  and 
pestilence  rendered  impossible  any  basis  for  valuing 
a  human  life,  but  when  cities  had  become  established 


8  LECTURES  ON  LIFE  INSURANCE 

and  governments  were  growing  more  secure,  the  value 
of  records  of  the  various  happenings  in  the  life  of 
civilized  communities  naturally  became  more  and  more 
evident  as  the  value  of  human  life  became  more  clearly 
the  foundation  on  which  must  be  built  all  that  per- 
tains not  only  to  the  commercial  prosperity,  but  also 
to  the  happiness  and  well-being  of  the  race. 

The  plague,  which  wrought  such  havoc  in  Eng- 
land, was  probably  the  cause  of  the  initiative  step 
which  was  taken  in  that  country  in  establishing  those 
records  which  have  made  possible  the  institution  of 
life  insurance,  for  to  it  must  be  attributed  the  earliest 
bills  of  mortality.  Within  a  period  of  seventy  years, 
London  had  been  visited  by  it  five  separate  times, 
145,000  having  died  from  its  collective  attacks.  It 
always  seemed  impending,  for  the  intervals  between 
its  departure  and  return  were  sometimes  only  eleven 
years,  and  had  never  exceeded  twenty-nine.  The 
reports  and  even  the  fear  of  its  approach  were  a  com- 
mercial calamity,  and  in  1592,  when  more  than  30,000 
died  of  the  disease,  appalling  as  was  the  reality,  the 
rumors  were  vastly  exaggerated.  An  attempt  to  quiet 
public  feeling  by  correctly  indicating  its  progress 
was,  therefore,  made  in  the  bills  of  mortality,  and 
though  they  were  not  at  first  maintained  consecutively, 
they  were  afterwards  found  so  useful  as  to  be  con- 
tinued from  the  29th  of  December,  1603,  down  to  the 
present  time.  While  they  served  to  correct  some  false 
notions,  they  were  not  made  of  practical  and  definite 
use  until  1664,  when  John  Graunt  published  a  book  on 
the  population,  which  contained,  as  he  stated,  "a  new 
and  accurate  thesis  of  policy  built  on  a  more  certain 
reasoning  than  had  yet  been  adopted."  This  work  met 
with  an  extraordinary  reception  and  stimulated  the 
consideration  of  these  subjects  by  thoughtful  men. 

He  failed  in  an  attempt  to  deduce  a  law  of  life 
from  these  records,  because  they  did  not  specify  the 
ages  as  well  as  the  deaths  of  the  people,  for  it  was 
not  until  1728  that  the  ages  of  the  dead  were  intro- 
duced in  the  London  bills  of  mortality.  From  his 
enumeration  of  his  objects,  it  may  be  seen  that  life 
insurance  was  not  contemplated  by  him,  but  he  made 


LECTURES  ON  LIFE  INSURANCE  9 

the  earliest  attempt  to  number  the  people,  classify  their 
callings  and  to  ascertain  the  mortality  among  them, 
and  he  thus  laid  the  foundation  of  this  science. 

The  Laws  of  Chance  came  to  be  developed  origi- 
nally very  much  in  the  interest  of  the  all-prevailing 
gaming  which  pervaded  Europe  during  the  seventeenth 
and  most  of  the  eighteenth  century. 

A  yet  higher  class  of  mathematics  soon  after- 
wards elaborated  the  doctrine  of  mathematical  prob- 
ability. The  application  of  these  higher  mathematical 
methods  to  the  data  supplied  by  the  bills  of  mortality 
and  other  mortality  observations  led  to  the  develop- 
ment of  life  contingencies. 

While  England  was  destined  to  be  the  country 
where  the  first  correct  principles  of  life  insurance 
were  to  be  developed,  the  data  upon  which  its  practice 
was  built  were  taken  from  the  registers  of  the  town 
of  Breslau  in  Silesia,  which  was  the  only  place  where 
a  record  of  the  ages  of  the  dead  was  kept.  In  1693 
Dr.  Halley,  the  Astronomer  Royal,  published  the 
Breslau  Table  of  Mortality,  which  was  the  first  im- 
portant step  toward  raising  the  doctrine  of  life  insur- 
ance to  a  position  to  claim  rank  amongst  the  sciences. 
From  the  recorded  ages  in  the  Breslau  register,  he 
constructed  a  table  of  the  probabilities  of  the  duration 
of  human  life  at  every  age,  and  he  taught  with  great 
clearness  the  conditions  needful  for  the  formation  of 
rates  of  mortality. 

Long  before  this,  contracts  involving  the  risk  of 
death  within  specified  times  had  been  entered  into,  but 
the  premiums  charged  bore  no  relation  to  the  hazard 
incurred,  and  however  legitimate  in  their  object  they 
might  have  been,  they  were  speculations. 

Although  the  means  were  at  hand  at  the  beginning 
of  the  eighteenth  century  for  the  establishment  of  the 
institution  of  life  insurance  on  a  firm  and  legitimate 
foundation,  it  continued  for  many  years  to  be  of  a 
speculative  character.  This  was  due  no  doubt  to  the 
temper  of  the  times  rather  than  to  any  other  single 
cause.  The  purpose  of  the  first  attempt  at  associated 
operation  was  legitimate,  although  its  basis  was  not 
very  substantial.     The  movement  at  the  beginning  of 


10  LECTURES  ON  LIFE  INSURANCE 

the  eighteenth  century  was  clearly  intended  to  be  in 
the  direction  of  permanence,  but  the  very  attractiveness 
of  the  features  of  the  business  rendered  it  a  prey  to 
unscrupulous  adventurers. 

The  earliest  project  of  associated  life  insurance 
was  made  in  1699,  and  was  called  "The  Society  of  As- 
surance for  Widows  and  Orphans."  This  scheme  had 
so  many  of  the  elements  of  modern  insurance  that 
those  who  originated  it  must  have  had  a  pretty  clear 
idea  not  only  of  its  necessities  from  a  financial  point 
of  view,  but  also  of  its  obligations  from  a  moral  stand- 
point. It  was  to  commence  as  from  April  6,  1699, 
and  registers  were  to  be  kept  in  some  public  place 
in  London.  In  these  were  to  be  entered  the  name 
and  age  of  each  subscriber,  the  names  and  ages  of  his 
wife  and  children,  or  of  any  other  persons  to  be  pro- 
vided for,  together  with  the  claim  of  every  widow  or 
person  made  upon  the  society,  and  the  sum  paid  upon 
such  claim.  These  books  were  to  be  open  to  the 
examination  of  subscribers,  and  all  matters  were  to 
be  heard  and  determined  by  thirteen  persons  who  were 
named  and  who  were  all  persons  of  good  social  posi- 
tion. Persons  entering  were  to  sign  the' deed  and 
within  six  months  were  to  appear  at  the  office  before 
three  or  more  trustees  and  have  their  policies  approved 
and  signed  by  the  secretary  in  their  presence,  at  which 
court  every  subscriber  should,  if  required  by  the  trus- 
tees or  by  the  master  of  the  office,  produce  a  certificate 
of  his  age  and  also  an  affidavit  that  he  had  not  any 
known  distemper  upon  him,  and  that  he  was  in  a  very 
good  state  of  health,  and  that  the  trustees  should  have 
power  to  refuse  the  person  if  it  appeared  he  -was  sickly 
or  infirm,  or  did  not  produce  the  certificate,  or  that 
in  any  other  respects  he  was  not  qualified  for  member- 
ship. Any  person  of  the  clergy  or  laity,  "excepting 
such  as  live  in  the  marshy  and  unhealthy  parts  of  Eng- 
land," might  be  admitted  by  proxy  if  known  to  the 
trustees  or  to  the  master  of  the  office,  or  to  some  two 
subscribers  or  substantial  housekeepers  living  within 
the  bills  of  mortality  as  a  person  of  good  report ;  also 
not  above  50  years  of  age,  and  also  a  certificate  signed 
by  the  ministers  of  three  neighboring  parishes,  testify- 


LECTURES  ON  LIFE  INSURANCE  11 

ing  that  they  did  believe  him  to  be  in  health,  and  of 
such  age  as  he  declared  himself  to  be.  There  was 
also  a  provision  that  in  case  of  persons  who  had  be- 
come members  becoming  soldiers  and  dying  in  warfare, 
or  dying  at  sea,  or  in  foreign  parts,  all  interest  in  the 
society  and  its  funds  was  to  be  forfeited. 

In  1704  there  were  600  members,  in  1705  there 
were  908,  in  1707  there  were  1104. 

Early  in  the  working  of  the  scheme  the  age  of 
entry  was  reduced  from  50  to  45  and  notice  was  given 
that  "When  the  society  shall  consist  of  1200  it  is 
designed  to  be  reduced  to  40,  when  of  1600  to  35, 
when  it  is  full  to  30  years  of  age,"  the  number  being 
limited  to  2,000.  In  one  of  the  prospectuses  issued 
about  this  time  appears  the  idea  of  family  protection, 
which  is  now,  as  it  was  then,  the  chief  reason  for  the 
existence  of  the  institution  of  life  insurance.  It  was 
expressed  as  follows :  "If  the  subscriber  be  a  clergy- 
man that  has  a  good  living  or  one  that  has  good  busi- 
ness or  that  has  an  office  whose  salary  and  perquisites 
are  considerable,  his  family  is  morally  secured  of  a 
good  subsistence.  As  long  as  the  subscriber  lives 
they  have  his  income  to  depend  upon,  and  at  his  death 
£500";  and  it  added,  "A  jointure  of  £10  or  £15 
(pounds)  per  annum  is  but  a  small  provision  for  a 
wife,  but  if  such  an  estate  were  settled  to  maintain  her 
title  to  the  joint  stock  of  this  society  when  it  is  full, 
she  will  have  at  her  husband's  death  £500  which  will 
purchase  an  annuity  of  £50  per  annum  upon  land 
security  and  free  of  all  reprisals."  This  was  the  first 
of  the  mutual  contribution  life  offices,  and  it  provided 
for  all  the  essential  conditions  of  life  assurance.  The 
lives  were  to  consist  of  persons  in  good  health,  not 
over  a  specified  age,  and  of  a  social  position  which 
would  enable  them  to  be  identified.  What  were  sup- 
posed to  be  extra  hazardous  risks  were  excluded,  and 
if  death  took  place  within  six  months  there  should  be 
no  claim.  This  last  regulation  took  the  place  of  the 
medical  examination  which  was  introduced  at  a  later 
date. 

The  year  1720  is  a  memorable  one  in  English 
history  and  hardly  less  so  in  the  history  of  life  assur- 


12  LECTURES  ON  LIFE  INSURANCE 

ance.  Gaming  and  speculation  had  pervaded  the  very 
atmosphere.  In  the  crude  life  assurance  project  of 
1699  a  new  mode  of  aggregating  wealth  had  been  pro- 
pounded. The  notion  having  taken  hold  of  the 
public  mind,  was  skilfully  but  unscrupulously  worked 
by  projectors  of  new  schemes.  The  very  unsoundness 
of  these  schemes  enabled  speculators  to  realize 
promptly  by  entering  unhealthy  lives.  In  a  mutual 
contribution  society  the  managers  have  no  pecuniary 
reason  for  excluding  these  lives,  for  the  greater  the 
number  of  members,  the  larger  will  be  the  amount 
of  the  entrance  fees  and  the  greater  will  be  the  profits 
of  the  managers,  as  the  subscribers  themselves  pay 
the  claims.  It  is  only  when  the  new  membership 
decreases  and  the  claims  increase,  that  the  unsound- 
ness of  the  plan  becomes  apparent.  The  real  merits 
of  life  assurance  were  becoming  more  understood,  and 
a  demand  therefore  arose  for  something  more  substan- 
tial and  lasting. 

The  first  important  attempt  on  the  part  of  any 
government  to  raise  money  by  the  sale  of  annuities 
was  made  by  John  DeWit,  Grand  Pensionary  of  Hol- 
land, in  1 67 1,  when  he  explained  the  basis  upon  which 
such  an  enterprise  could  be  successfully  carried  out. 
In  1692  the  first  attempt  was  made  by  the  English 
Government  to  raise  money  by  life  annuities,  and  in 
1720  there  was  an  annual  charge  upon  the  revenue  of 
eight  hundred  thousand  pounds  for  irredeemable 
annuities  granted  in  the  reigns  of  William  and  Anne. 

It  was  at  this  time  that  the  South  Sea  Company, 
which  had  been  organized  for  trade  with  South 
America,  made  an  ofTer,  which  was  accepted,  to  pro- 
vide seven  millions  and  a  half  to  buy  up  these  annuities. 
The  annuitants  were  not  compelled  to  exchange  their 
government  security  for  the  Company's  stock.  So 
thoroughly,  however,  had  the  spirit  of  speculation 
taken  hold  of  the  popular  mind,  that  to  hold  stock  in 
a  company  with  exclusive  trading  privileges  seemed 
a  far  greater  thing  than  to  realize  seven,  eight  or  even 
nine  per  cent,  upon  annuities.  Within  six  days  of  the 
announcement  of  the  Company's  terms,  two-thirds  of 
the  annuitants  had  exchanged  their  certain  income  for 


LECTURES  ON  LIFE  INSURANCE  13 

the  vast  imaginary  riches  of  South  America.  Before 
the  close  of  the  year  the  South  Sea  Bubble  burst  simul- 
taneously with  the  Mississippi  Bubble  in  France.  Many 
circumstances  point  to  the  fact  that  money  made  in 
insurance  projects  passed  into  South  Sea  stocks,  and 
certainly  some  of  the  young  assurance  offices  invested 
their  members'  money  in  these  stocks  and  advertised 
that  they  had  done  so. 

To  what  precise  extent  the  various  projects  of 
this  eventful  period  were  interlaced  it  is  now  impos- 
sible fully  to  unravel.  It  is  certain,  however,  that 
with  the  bursting  of  the  South  Sea  Bubble  all  of  the 
life  insurance  projects  existing  in  England  at  that 
time,  with  a  single  exception,  passed  into  thin  air,  and 
were  heard  of  no  more.  There  had  probably  been  fifty 
life  assurance  schemes  set  on  foot  between  1699  and 
1720,  and  the  loss  to  the  public  resulting  from  their 
operations  can  only  be  conjectured. 

A  period  which  may  properly  be  called  one  of 
scientific  exactitude  began  with  1721,  at  which  time 
there  was  but  one  life  assurance  office  in  existence  in 
Great  Britain,  the  Amicable,  founded  in  1706.  That 
too  was,  so  far  as  is  known,  the  only  life  assurance 
association  in  the  world.  It  was  very  defective  in  its 
mode  of  working,  but  it  stood  alone.  It  had  at  this 
date  an  accumulated  fund  of  about  £50,000  and  it  had 
distributed  in  death  claims  £1 18,000. 

Between  1720  and  1760  many  investigations  were 
made  into  the  subject  of  life  contingencies,  and  many 
works  of  much  merit  were  published.  These  had  ref- 
erence chiefly  to  annuities  and  to  the  mathematical 
questions  involved  in  their  calculation.  A  careful 
examination  of  the  history  of  this  period  fails  to  dis- 
close any  evidence  of  a  systematic  attempt  to  apply 
the  results  of  the  search  for  the  law  of  mortality  to 
the  establishment  of  life  insurance  as  a  stable  and 
legitimate  business.  After  a  careful  scrutiny  of  all 
the  facts  obtainable,  it  was  declared  that  the  insurance 
of  a  sum  payable  under  a  contract  designed  to  extend 
over  the  whole  duration  of  life,  and  either  at  a  gradu- 
ated or  an  equalized  premium,  was,  at  the  time  to 
which  we  are  now  referring,  a  contract  very  rarely 


14  LECTURES  ON  LIFE  INSURANCE 

entered  upon  either  by  the  commercial  or  other  classes 
of  the  community:  and  we  may  take  it  as  established 
that  no  plan  of  life  assurance  as  we  now  understand 
it  had  been  contemplated  by  any  company  or  society, 
or  had  been  considered  by  any  legislature  in  Europe 
prior  to  the  year  1760. 

It  was  in  this  year  that  the  first  active  steps  were 
taken  to  establish  a  plan  of  life  assurance  upon  the 
principle  of  exact  scientific  computation,  the  premium 
being  a  fixed  annual  charge,  determined  by  the  age  of 
the  insured  at  the  time  of  entering  into  the  contract ; 
and  the  sum  insured  being  likewise  a  fixed  and  deter- 
minate sum,  subject  to  no  diminution  on  any  ground 
whatever. 

It  is  estimated  that  at  this  time  the  sum  insured 
on  lives  in  Great  Britain  amounted  to  £350,000.  These 
insurances  were  mostly  if  not  all  for  one  year,  and 
the  premiums  were  not  graduated  according  to  ages, 
but  were  much  larger  than  the  actual  risk  justified. 
Some  three  years  prior  to  this  date,  a  petition  was 
presented  to  the  Secretary  of  State's  office,  setting 
forth  the  object  for  which  a  charter  was  desired,  sub- 
stantially as  follows : 

"That  great  numbers  of  His  Majesty's  subjects, 
whose  subsistence  principally  depends  on  the  salaries, 
stipends  and  other  incomes  payable  to  them  during 
their  natural  lives,  or  on  the  profits  arising  from  their 
several  trades,  occupation,  labor  and  industry,  are 
very  desirous  of  entering  into  a  society  for  insuring 
the  lives  of  each  other,  in  order  to  extend  after  their 
decease  the  benefit  of  their  present  incomes  to  their 
families,  and  relations,  who  may  otherwise  be  reduced 
to  extreme  poverty  and  distress  by  the  premature  death 
of  their  several  husbands,  fathers  and  friends,  which 
humane  intention  the  petitioners  humbly  apprehend 
cannot  be  effectually  carried  into  execution  without 
His  Majesty's  royal  authority  to  incorporate  them  for 
that  purpose." 

Although  the  application  for  a  charter  was  pressed 
with  some  vigor  in  1760  and  1 761,  it  was  not  until  1762 
that  the  objections  were  overcome  and  the  incorpo- 
ration of  "The  Society  for  Equitable  Assurance  on 
Lives  and  Survivorships"  was  accomplished. 


LECTURES  ON  LIFE  INSURANCE  15 

Among  the  reasons  advanced  against  the  granting 
of  the  charter  was  that  "the  success  of  this  scheme 
must  depend  upon  the  truth  of  certain  calculations 
taken  upon  tables  of  life  and  death  whereby  the  chance 
of  mortality  is  attempted  to  be  reduced  to  a  certain 
standard :  this  is  mere  speculation,  never  yet  tried  in 
practice,  and  consequently  subject,  like  all  other  experi- 
ments, to  various  chances  in  the  execution." 

It  was  pointed  out  furthermore  that  the  tables 
from  which  the  premiums  were  derived  were  the  bills 
of  mortality  of  London  and  the  Breslau  tables,  which, 
admitting  their  accuracy,  which  was  very  doubtful, 
included  diseased  as  well  as  healthy  persons  and  those 
engaged  in  hazardous  as  well  as  other  employments, 
while  it  was  proposed  to  insure  only  healthy  persons, 
excluding  those  who  for  any  reason  were  regarded  as 
hazardous  risks. 

The  history  of  modern  life  insurance  dates  from 
the  foundation  of  this  Society,  which  has,  in  its  own 
experience,  not  only  demonstrated  the  benefits  of  true 
protection,  but  also  has  shown  the  stability  of  the  busi- 
ness through  the  varying  problems  which  a  hundred 
and  forty  years  have  brought  to  it  for  solution. 

Its  first  rates  were  based  on  the  bills  of  mortality 
of  the  City  of  London  during  a  period  which  included 
the  year  1740,  when  the  death  rate  was  almost  equal 
to  that  of  a  plague,  and  were  in  consequence  unneces- 
sarily high. 

In  1769  Dr.  Price  published  his  work — "Obser- 
vations on  Reversionary  Payments ;  on  Schemes  for 
providing  Annuities  for  Widows  and  for  Persons  in 
old  age;  on  the  Method  of  Calculating  the  Values  of 
Assurances  on  Lives,  etc."  The  table  which  he  con- 
structed from  the  records  of  the  town  of  Northamp- 
ton, widely  known  as  the  Northampton  Table,  became 
and  continued  to  be  for  many  years  the  standard  for 
life  insurance  calculations.  The  Equitable  Society  in 
1777  reduced  its  rates  materially,  although  they  still 
remained  so  high  that  large  surplus  accumulations 
resulted  from  the  premiums  received  from  policy- 
holders. 

That   the   premiums    charged,    even    after   many 


16  LECTURES  ON  LIFE  INSURANCB 

years  of  experience,  were  excessive  was  clearly 
shown  by  a  comparison  of  the  actual  mortality  of  this 
Society  with  the  theory  upon  which  these  premiums 
were  based.  In  the  twelve  years  preceding  1829  the 
expected  deaths  by  the  Northampton  Table  were  2248, 
while  the  actual  claims  numbered  but  1489.  When 
the  records  of  this  Company  drew  the  attention  of  the 
public  to  the  profits  accruing  from  the  transaction  of 
this  business  at  the  rates  then  current,  numerous  similar 
corporations  rapidly  came  into  being,  most  of  them 
for  the  benefit  of  stockholders.  Although  it  is  prob- 
able that  many  of  these  were  organized  with  the  in- 
tention of  meeting  the  obligations  of  policies  as  well  as 
for  the  profit  of  incorporators,  yet  few  of  them  long 
survived,  and  it  was  not  until  near  the  middle  of  the 
nineteenth  century  that  the  business  assumed  a  magni- 
tude which  commenced  to  make  it  a  positive  force  in 
the  affairs  of  the  world. 

In  the  nature  of  things,  the  only  mortality  tables 
available  in  the  early  history  of  the  business,  namely, 
those  derived  from  public  records,  would  in  time  be 
abandoned  for  those  made  up  from  the  experience 
among  the  selected  lives  of  the  companies  themselves, 
when  that  experience  should  be  sufficiently  extensive 
to  furnish  valuable  results.  The  decision  to  construct 
a  table  from  the  data  to  be  furnished  by  the  various  life 
offices  was  reached  in  1838.  Seventeen  companies  con- 
tributed their  experience,  comprising  83,905  assur- 
ances. The  calculations  were  made  under  the  direc- 
tion of  the  most  skilled  mathematicians  of  the  day,  and 
the  result  was  a  table  adjusted  and  graduated  in  so 
masterly  a  manner  that  it  has  up  to  the  present  time 
been  used  more  generally  than  any  other.  It  was  pub- 
lished in  1843  and  was  called  "The  Actuaries'  or  Com- 
bined Experience  Table  of  Mortality." 

Inasmuch  as  the  risk  of  death  is  greater  at  each 
age  than  it  was  at  that  next  previous,  the  premiums 
required  will  increase  as  the  life  advances.  It  has  been 
evident  from  a  very  early  day  that  a  fixed  premium 
will  in  most  cases  be  more  satisfactory  to  the  insured, 
and  safer  for  the  insurer,  than  an  ascending  scale, 
which  creates  a  burden  growing  with  advancing  years. 


LECTURES  ON  LIFE  INSURANCE  17 

A  level  premium  will  be  larger  than  the  contributions 
to  death  losses  require  in  the  early  years  of  insurance, 
and  this  surplus,  together  with  deposits  requisite  to 
meet  liabilities  undertaken  in  various  contracts,  must 
be  invested  to  provide  for  future  necessities.  The  rate 
of  interest  which  is  likely  to  be  realized  for  many 
years  is,  consequently,  a  vital  question. 

As  will  appear  when  the  forms  of  contract  are 
discussed,  it  is  not  unlikely  that  some  of  the  life  insur- 
ance obligations  assumed  at  this  time  will,  in  some 
form,  still  be  outstanding  a  hundred  years  hence.  The 
history  of  the  rate  of  interest  is,  therefore,  an  impor- 
tant part  of  the  study  of  life  insurance. 

It  is  not  necessary  in  this  connection  to  attempt 
to  trace  the  record  of  the  recompense  demanded  from 
the  earliest  period  of  commercial  undertakings  by  those 
having  money  to  lend,  and  the  restrictions  which  the 
laws  have  from  time  to  time  placed  upon  these  transac- 
tions. Supply  and  demand  have  caused  wide  fluctu- 
ations in  this  rate,  but  the  peculiar  nature  of  the  in- 
vestments suitable  for  life  insurance  companies  is 
such,  that  a  more  accurate  analysis  of  past  experience 
and  a  more  certain  estimate  of  the  future  is  possible 
than  in  any  other  class  of  invested  funds.  In  other 
financial  institutions  where  interest  plays  an  important 
part,  the  liabilities  are  of  such  a  nature  that  the  avail- 
ability of  the  resources  set  aside  to  meet  them  must  be 
a  controlling  element.  The  amount  of  cash  which  will 
be  required  from  time  to  time  to  meet  the  maturing 
obligations  of  life  insurance  companies  can  be  fore- 
told with  substantial  accuracy,  and  the  rate  of  interest 
which  will  be  safely  obtainable  is  consequently  higher. 
The  fluctuations  in  the  price  of  government  and  sim- 
ilar bonds,  and  the  interest  resulting  to  the  investor, 
should  not,  therefore,  be  relied  upon  by  the  student  of 
this  branch  of  finance.  A  very  large  part  of  the  busi- 
ness heretofore  transacted  as  well  as  that  now  in  force 
was  based  upon  the  assumption  that  4  per  cent,  would 
be  realized  on  the  invested  funds,  and  the  safety  of 
this  had  been  verified  by  experience.  A  decline  in  the 
earning  power  of  money  invested  in  securities  suitable 
for  trust  funds  of  all  kinds  has  been  going  on  for  many 


18  LECTURES  <  N  LIFE  INSURANCB 

years,  and  has  resulted  in  a  reduction  in  the  rate  em- 
ployed in  calculating  premiums  and  reserves. 

The  experience  of  the  English  government  in 
connection  -with  the  sale  of  annuities  was  of  such  a 
character  as  to  make  it  worthy  of  note  as  an  example 
of  the  care  which  must  be  exercised  in  drawing  con- 
clusions from  statistics  when  the  power  of  selection 
rests  with  the  individual.  In  1808  England  placed 
this  branch  of  the  public  finances  under  the  control 
of  the  Commissioners  for  the  Reduction  of  the 
National  Debt,  and  terms  were  offered  which  -were  so 
attractive  that  a  very  large  obligation  was  incurred. 
The  Northampton  Table  having  been  found  to  be  a 
safe  basis  for  life  insurance,  was  adopted  by  the  Gov- 
ernment as  a  basis  for  its  annuity  operations.  While 
a  life  insurance  company  can  select  its  members  from 
those  who  appear  to  have  the  elements  of  longevity,  if 
annuities  are  offered,  the  applicants  which  are  accepted 
cannot  be  chosen  from  those  who  are  inferior  in  phy- 
sical or  hereditary  strength.  Self-interest  will,  there- 
fore, play  an  important  part  in  the  transaction,  and 
annuitants  have  always  been  and  always  will  be  drawn 
from  the  long  lived  class,  for  as  a  rule  only  those  who 
have  reason  to  expect  to  live  to  old  age  will  invest 
at  the  outset  the  sums  required  for  the  purchase  of 
contracts  providing-  for  the  periodical  payment  of 
amounts  ceasing  only  with  death. 

The  mistake  of  supposing  that  the  lives  of  this 
class  would  terminate  in  accordance  with  the  rule 
applicable  to  the  general  population,  cost  the  English 
government  many  million  dollars  before  the  error 
could  be  rectified. 

It  was  in  England  that  the  theories  of  the  busi- 
ness were  most  carefully  studied,  and  put  in  practice, 
but  the  development  of  the  institution  has  been  more 
rapid  in  the  United  States  than  in  any  other  country. 

It  has  been  estimated  that  apart  from  annuity 
contracts,  there  were  not  a  hundred  policies  in  force 
in  the  United  States  on  the  risk  of  life  at  the  begin- 
ning of  the  nineteenth  century,  and  it  has  been  only 
within  the  past  forty  years,  that  the  public  recognition 
of  the  value  of  life  insurance  has  been  such  as  to  raise 


LECTURES  ON  LIFE  INSURANCE  19 

this  business  to  a  position  in  which  it  not  only  plays 
an  important  part  in  social  problems,  but  also  affects 
the  financial  life  of  the  nation. 

It  is  difficult  to  estimate  the  total  amount  of  insur- 
ance carried  by  all  the  corporations  and  associations 
engaged  in  the  business  of  life  insurance,  but  some 
idea  may  be  gained  of  its  proportions  by  examining 
the  records  of  the  departments  appointed  by  state 
governments  to  supervise  its  affairs.  The  first  of 
these  departments  was  established  in  the  eastern  states, 
but  the  power  of  the  states  to  prescribe  the  conditions 
under  which  outside  corporations  shall  prosecute  the 
business  transacted  within  their  borders  has  led  to 
careful  scrutiny  of  the  affairs  of  these  institutions. 

In  the  year  i860,  the  life  companies  reporting  to 
the  Insurance  Department  of  the  State  of  New  York 
showed  an  aggregate  annual  premium  income  of 
$4,700,000,  with  56,000  policies  in  force,  representing 
outstanding  insurance  of  $163,000,000.  To  provide 
for  the  ultimate  payment  of  these  obligations,  these 
corporations  held  funds  to  the  amount  of  some  $24,- 
000,000.  In  1870  this  Department  reported  that  the 
life  companies  authorized  to  prosecute  business  in 
the  state  had  an  aggregate  premium  income  of  $90,- 
000,000  with  740,000  policies  and  $2,000,000,000  of 
insurance.  Their  assets  then  amounted  to  about 
$270,000,000. 

The  next  decade  witnessed  a  decline  in  the  busi- 
ness, but  for  25  years  its  progress  has  been  continuous, 
and  at  the  present  time  the  companies  classed  as  reg- 
ular have  more  than  $8,000,000,000  of  insurance  in 
force,  with  a  premium  income  of  $380,000,000  per 
annum  and  accumulated  assets  of  over  $2,000,000,000. 
The  records  of  no  other  country  approach  these  figures. 

In  many  countries  companies  have  been  formed 
to  assume  life  insurance  obligations,  and  there  is  now 
no  civilized  country  whose  inhabitants  are  precluded 
from  the  benefits  of  this  protection,  a  knowledge  of 
which,  in  its  general  features  at  all  events,  is  now  a 
necessary  part  of  the  education  of  that  citizen  who 
desires  to  be  well  equipped  for  the  part  he  is  to  take 
in  the  affairs  of  his  country. 


ECONOMICAL  FUNCTIONS  OF  INSURANCE 
WITH  RELATION  TO  THE  FAMILY 


{Delivered  in  Yale  University  Course) 


~p  ACH  family  requires  for  its  subsistence  a  certain 
sum  of  money,  which  varies  both  as  to  the 
amount  and  the  length  of  time  during  which  it  will 
be  needed,  according  to  the  circumstances  which  sur- 
round each  individual  case.  The  income  is,  in  some 
cases,  derived  from  invested  funds  inherited  or  ac- 
cumulated, but,  in  general,  it  represents  the  earnings 
of  that  one  upon  whom  rests  the  responsibility  of  sup- 
porting the  various  individuals  who  have  the  right 
to  look  to  him  for  maintenance. 

The  relations  between  life  insurance  and  the 
family  spring  from  this  state  of  affairs,  and  depend 
upon  the  value  which  one  human  life  has  to  another. 
To  clearly  understand  how  this  may  be  ascertained, 
it  will  be  useful  to  consider  the  rules  which  govern 
the  worth  of  some  varieties  of  property. 

In  the  analysis  of  the  question  under  consideration, 
it'  will  be  assumed  that  the  security  underlying  the 
evidence  of  indebtedness  is  abundant  and  not  regarded 
with  doubt. 

The  simplest  form  of  invested  funds  is,  perhaps, 
a  note  or  other  form  of  obligation,  the  payment  of 
which  may  be,  at  any  time,  demanded  by  the  lender 
or  made  by  the  borrower.  The  value  of  this  is  always 
the  amount  it  represents,  for  if  the  current  rate  of 
interest  rises  above  the  rate  which  has  been  agreed 
upon,  the  lender  will  demand  his  principal  in  order 
that  he  may  put  his  money  to  more  profitable  use. 
If,  on  the  other  hand,  the  ruling  rate  falls  below  that 
stipulated  for,  the  borrower  will  pay  his  obligation 
and  secure  his  money  on  more  favorable  terms. 

The  present  value  of  a  bond  running  for  a  stated 


LECTURES  ON  LIFE  INSURANCE  21 

term  of  years,  and  bearing  a  fixed  rate  of  interest, 
is  a  kind  of  property  into  which  another  element  is 
introduced  and  which  will  serve  to  show  the  controlling 
force  which  interest  exerts  in  all  valuations.  The 
price  of  such  a  bond  will  depend  upon  the  rate  of 
interest  which  it  bears  compared  with  the  current  rate 
which  can  be  obtained  by  investors,  and  which,  there- 
fore, must  be  satisfactory  to  them. 

If  the  rate  provided  for  is  greater  than  the  market 
rate,  the  value  of  the  bond  will  be  greater  than  its  face 
value,  but  will  decrease  as  it  approaches  maturity,  at 
which  time  only  the  face  value  will  be  payable.  If, 
on  the  other  hand,  the  stipulated  rate  is  less  than  that 
current,  the  value  will  be  less  than  the  face,  but  will 
increase  up  to  the  time  when  the  full  obligation  will 
be  payable. 

If  the  rate  coincides  with  the  market,  the  value 
will  coincide  with  the  amount  of  the  bond. 

If  the  current  rate  of  interest  changes,  the  value 
will  change  accordingly. 

In  valuing  lands,  still  other  elements  must  be 
introduced,  although  the  interest  question  still  exerts 
a  force  which,  on  the  whole,  is  controlling. 

Adam  Smith  in  his  "Wealth  of  Nations,"  pub- 
lished in  1776,  remarks,  "The  ordinary  market  price 
of  land,  it  is  to  be  observed,  depends  everywhere  upon 
the  ordinary  market  rate  of  interest.  The  person  who 
has  a  capital  from  which  he  wishes  to  derive  a  revenue, 
without  taking  the  trouble  to  employ  it  himself,  de- 
liberates whether  he  should  buy  land  with  it  or  lend 
it  out  at  interest.  The  superior  security  of  land,  to- 
gether with  some  other  advantages,  which  almost 
everywhere  attend  upon  this  species  of  property,  will 
generally  dispose  him  to  content  himself  with  a 
smaller  revenue  from  land  than  what  he  might  have 
by  lending  out  his  money  at  interest.  These  advan- 
tages are  sufficient  to  compensate  a  certain  differ- 
ence of  revenue ;  but  they  will  compensate  a  certain 
difference  only;  and  if  the  rent  of  land  should  fall 
short  of  the  interest  of  money  by  a  greater  difference, 
nobody  would  buy  land,  which  would  soon  reduce  its 
ordinary  price.     On  the  contrary,  if  the  advantages 


22  LECTURES  ON  LIFE  INSURANCE 

should  much  more  than  compensate  the  difference, 
everybody  would  buy  land,  which  again  would  soon 
raise  its  ordinary  price.  When  interest  was  at  10 
per  cent.,  land  was  commonly  sold  for  ten  and  twelve 
years'  purchase.  As  interest  sunk  to  6,  5  and  4  per 
cent.,  the  price  of  land  rose  to  twenty,  five  and  twenty 
and  thirty  years'  purchase.  The  market  rate  of  interest 
is  higher  in  France  than  in  England ;  and  the  common 
price  of  land  is  lower.  In  England  it  commonly  sells 
at  thirty,  in  France  at  twenty  years'  purchase." 

In  modern  times  this  rule  seems  to  hold  good. 
In  thirteen  counties  in  the  States  of  Iowa,  Illinois, 
Missouri,  Nebraska  and  Kansas,  there  are  now  on 
record  appraisals  of  farming  lands  made  in  1876, 
showing  an  average  of  $20  per  acre.  At  that  time 
money  was  loaned  on  these  lands  at  10  per  cent.  In 
1903  lands  in  these  same  counties  were  appraised 
at  an  average  of  $39.60  per  acre,  while  loans  were 
made  at  about  5  per  cent. 

In  the  varieties  of  property  thus  far  considered, 
there  will  be  found  to  be  lacking  certain  elements 
which  produce  chances  of  change  and  deterioration, 
which  must  be  combined  with  interest  in  valuing  othef 
classes  of  property.  A  lot  in  the  center  of  the  city 
has  no  value  of  its  own,  and  can  only  be  made  income- 
producing  by  the  erection  upon  it  of  a  building  for 
the  use  of  which  a  rental  will  be  paid.  There  are 
many  circumstances  which  must  now  be  considered  in 
determining  the  worth  of  this  property.  If  it  is  com- 
posed of  or  surrounded  by  inflammable  materials,  its 
value  will  be  unfavorably  affected.  It  is  true  that  the 
owner  can  protect  himself  against  loss  by  fire  by  a 
policy  of  insurance,  but  he  must  pay  for  this  protection 
his  full  share  of  the  risk,  which  will  be  accurately 
estimated,  and  the  value  which  the  building  would 
have,  were  it  not  for  this  hazard,  will  be  diminished 
by  just  the  chance  of  that  contingency.  The  present 
condition  of  the  structure,  viewed  in  the  light  of  nat- 
ural decay  and  its  adaptability  to  the  needs  of  the 
location  and  times,  will  demand  intelligent  discrimi- 
nation. The  amount,  therefore,  which  an  investor 
will  pay  for  the  block  will  be  determined  by  his  knowl- 


LECTURES  ON  LIFE  INSURANCE  23 

edge  of  -what  it  now  produces,  and  his  estimate  both 
of  what  it  will  yield  in  the  future  and  the  time  when, 
either  by  gradual  deterioration  or  by  sudden  accident,  it 
will  become  unable  to  afford  an  income.  If  there  can  be 
obtained  from  it  more  than  will  suffice  to  meet  neces- 
sary expenditures,  then  the  property  has  an  actual 
value  which  will  vary  according  to  the  estimate  that 
may  be  made  of  its  future,  always  controlled  by  the 
current  rate  of  interest  which  can  be  obtained  on  in- 
vestments. 

That  neighborhood  which  today  attracts  business 
by  the  elegance  of  its  buildings,  or  its  nearness  to  lines 
of  travel  or  transportation,  may  tomorrow  be  swept 
by  fire  or  damaged  by  changes  in  modes  of  conveyance. 
No  human  foresight  can  provide  with  certainty  for 
these  contingencies,  but  the  general  future  of  a  section 
is  estimated  by  the  careful  student  of  the  laws  under- 
lying commercial  transactions,  with  an  accuracy  which, 
on  the  whole,  enables  him  to  reap  the  profits  that 
legitimately  belong  to  high  intelligence.  In  the  change 
of  ownership,  the  purchaser  thinks  that  he  is  receiving 
more  than  an  equivalent  for  his  money ;  else  he  would 
not  buy.  The  seller  differs  as  to  the  probable  future, 
and  belives  that  what  he  now  receives  will  be  of 
greater  value;  otherwise  he  would  retain  his  pos- 
session. The  result  in  almost  any  particular  trans- 
action will  show  that  one  or  the  other  has  erred  in  his 
estimate,  but  on  the  whole,  real  estate  or  any  other 
property  which  is  valued  for  its  income  will  be  found 
to  conform  to  the  general  law  which  governs  the  value 
of  money. 

Repairs  and  alterations  may  be  made  which  will 
check  decay  or  even  increase  productiveness,  but  each 
change  will  call  for  a  new  expenditure  which  will  not 
prevent  the  decline  in  the  value  of  the  original  invest- 
ment. 

Having  considered  the  elements  which  enter  into 
the  value  of  certain  kinds  of  property,  it  can  now  be 
enquired  whether  a  human  life  can  have  a  definite 
worth  which  can  be  measured  with  any  degree  of  ac- 
curacy. It  would  not  be  difficult  to  enumerate  many 
lives  which  cannot  be  considered  of  any  pecuniary 


24  LECTURES  ON  LIFE  INSURANCE 

value,  because,  for  various  reasons,  they  produce  noth- 
ing. Such  are  those  of  the  very  old,  the  imbeciles 
and  the  confirmed  invalids.  But  the  life  of  every 
man  who  earns  more  than  suffices  for  his  actual  per- 
sonal expenses  is  of  pecuniary  value  to  someone  besides 
himself.  This  has  been  recognized  from  early  times 
in  the  institution  of  slavery,  which  was  based  on  the 
principle  that  the  ownership  of  the  services  of  a  human 
being  had  a  value  in  accordance  with  the  excess  of 
earnings  obtainable  above  the  necessary  cost  of  sub- 
sistence. When  a  slave  was  purchased  as  an  invest- 
ment, he  was  examined  in  order  that  the  state  of  his 
health  and  his  muscular  development  might  be  known. 
These  qualities  in  connection  with  his  age,  his  skill 
in  any  variety  of  labor,  and  his  disposition,  determined 
the  price  at  which  he  seemed  likely  to  be  a  profitable 
investment.  A  carpenter  or  blacksmith  was  worth  50 
per  cent,  more,  other  things  being  equal,  than  an  or- 
dinary field  hand,  because,  while  the  cost  of  his  sup- 
port was  no  greater,  the  quality  of  his  service  was 
much  more  valuable.  In  any  case,  however,  certain 
important  elements  were  either  wholly  lacking  or  but 
partially  developed.  "A  person  who  can  acquire  no 
property  can  have  no  other  interest  but  to  eat  as  much 
and  to  labor  as  little  as  possible." 

Family  ties  are  needed  to  develop  the  highest 
value  of  a  human  life.  But  while  this  value  thus 
reaches  its  greatest  capacity,  there  devolves  upon  its 
possessor  the  responsibility  of  supporting  those  who 
have  by  his  own  choice  and  act  the  right  to  depend 
upon  him  for  the  necessities  of  life.  The  family,  then, 
has  a  clear  and  indisputable  interest  in  his  earnings. 
This  they  have  day  by  day,  month  by  month,  and 
year  by  year.  If  he  dies  possessed  of  property,  this 
by  right  goes  to  them,  in  order  that  they  may,  so  far 
as  its  income  may  enable  them,  continue  to  defray 
the  cost  of  existence. 

But  what  of  the  life  itself?  Has  it  a  value  beyond 
what  it  produces  in  a  month  or  a  year  which  can  be 
measured  with  any  degree  of  accuracy?  Supposing 
its  possessor  to  be  of  good  constitution  and  free  from 
hereditary  taint,  it  has  already  been  shown  that  he  and 


LECTURES  ON   LIFE   INSURANCE  25 

others  of  his  class  will  be  governed,  as  to  the  length 
of  their  lives,  by  a  law  of  mortality  so  certain  that 
their  average  lifetime  may  be  measured  -with  as  much 
precision  as  that  which  governs  any  series  of  future 
events.  For  example:  A  man  is  thirty  years  old,  in 
good  health,  and  his  surplus  earnings  are  $1,500  a 
year,  and  money  is  worth  4  per  cent,  per  annum:  by 
a  standard  mortality  table,  the  present  value  of  the 
future  surplus  earnings  of  this  life  is  $25,560.  It  is 
true  that  this  value  is  based  on  averages,  and  that  the 
assumption  that  he  will,  through  his  life,  receive  and 
spend  just  the  amounts  here  set  down  will  not  prob- 
ably be  realized.  It  is  well-nigh  certain  that  his 
death  will  occur  either  before  or  after  the  date  ex- 
pected. Disease  or  accident  may  rob  him  permanently 
of  his  productive  power.  Circumstances  which  no 
skill  guided  by  research  can  calculate,  and  no  judg- 
ment foretell,  may  change  the  current  of  his  life, 
and  enchance  or  diminish  the  value  of  his  efforts.  And 
yet  this  value  rests  upon  a  foundation  composed  of 
elements  no  more  uncertain  than  those  which  deter- 
mine the  worth  of  the  business  block.  Both  the  build- 
ing and  the  life  are  constantly  exposed  to  the  danger 
of  destruction,  but  the  chance  can  be  measured  even 
more  accurately  in  the  latter  case  than  in  the  former. 

The  natural  ability  of  one  man  is  greater  than  that 
of  another,  and  this  advantage  will  be  shown  in  the 
value  of  their  respective  services.  These  qualities  as  well 
as  those  of  industry  and  perseverance  are  inborn  traits, 
and  will,  considered  in  connection  with  education  and 
training,  determine  the  amount  for  which  their  pos- 
sessor can  lease  his  efforts  to  others  or  employ  them 
for  independent  profit.  What  nature  has  done  for  the 
man  may  be  said  to  correspond  with  the  location  of 
the  building.  What  experience  has  taught  him  is  like 
the  quality  of  the  structure.  In  each  case  there  are 
certain  necessary  expenditures  which  must  be  met 
before  any  real  value  can  exist,  and  in  each  case  the 
worth  rests  upon  estimates. 

The  family  which  depends  upon  this  income  has 
an  interest  in  the  life  which  produces  it,  which  is  not 
limited  by  a  month  or  a  year.     It  extends  into  the 


26  LECTURES  ON  LIFE  INSURANCE 

future  as  far  as  they  need  it.  Without  it  they  will 
suffer  privation  or  be  dependent  upon  charity,  in 
either  of  which  conditions  their  natural  protector 
has  no  right  to  leave  them.  It  is  here  that  the  insti- 
tution of  life  insurance  performs  the  service  for  which 
it  was  created.  It  renders  immediately  available  the 
future  earnings  of  a  lifetime.  It  takes  the  place  of 
him  whose  duty  it  is  to  care  for  his  dependents  until 
they  can  care  for  themselves. 

The  Federal  Bureau  of  Labor  has  completed  an 
extended  investigation  into  the  cost  of  living  of  work- 
ingmen's  families,  and  the  retail  prices  of  the  prin- 
cipal staple  articles  of  food  used  by  such  families. 
The  material  for  the  detailed  study  of  the  cost  of  liv- 
ing consisted  of  the  figures  of  income  and  expenditures 
furnished  by  some  2,500  families  in  thirty-three  states, 
although  certain  data  not  entering  so  much  into  detail 
were  gathered  from  25,000  families.  The  2,500  fam- 
ilies furnishing  the  detailed  material  consisted  on  an 
average  of  5.31  persons,  a  figure  slightly  (0.7),  above 
the  average  of  private  families  in  the  whole  country 
as  shown  by  the  census  of  1900.  The  average  yearly 
expenditures  for  all  purposes  was  $768.54  for  the 
year  1901.  Of  this,  43  per  cent,  was  for  food,  13  per 
cent,  for  rent,  14  per  cent,  for  clothing  and  5  per  cent, 
for  fuel  and  lighting.  Three-quarters  of  the  expendi- 
tures -was  for  the  actual  necessities  of  ordinary  living, 
the  remainder  representing  miscellaneous  expenses,  in- 
cluding the  cost  of  education  and  sickness.  If  this 
average  family  is  supported  by  one  person,  his  death 
would  diminish  the  total  family  expenditures  by  some 
amount.  It  is  not  unreasonable  to  assume  that  the 
cost  of  maintaining  the  remainder  would  be  $500.00 
per  annum.  Assuming  that  he  is  forty  years  of  age, 
and  in  good  health,  and  that  money  is  worth  4  per 
cent,  per  annum,  the  present  value  which  this  family 
has  in  his  life  is  $7,546.50.  Human  and  divine  laws 
give  them  the  right  to  the  fruit  of  his  labors.  But 
does  he  perform  his  whole  duty  when  he  furnishes 
them  with  food,  clothing  and  the  other  necessities  of 
life,  or  even  with  education  suitable  to  their  station? 
He  mav  live  to  see  his  children  self-supporting,  and 


LECTURES  ON  LIFE  INSURANCE  27 

to  provide  for  the  old  age  of  himself  and  his  wife,  but 
what  if  his  life  shall  be  cut  off  while  they  are  still  un- 
able to  earn  their  own  subsistence? 

Hadley  says :  "Although  society  insists  as  far 
as  it  can  that  each  man  shall  be  responsible  for  him- 
self and  his  family,  it  cannot  carry  this  principle  out 
to  its  logical  conclusion.  We  cannot  kill  off  the  weak 
merely  because  they  have  been  unable  to  support 
themselves.  Still  less  can  we  leave  the  unfortunate 
to  die  as  a  result  of  their  incapacity.  The  ethical  loss 
to  the  community  which  adopted  such  a  course  would 
indefinitely  outweigh  any  material  or  physical  gain. 
The  independent  and  the  unfortunate  must  under  cer- 
tain conditions  be  taken  care  of  by  society,  even  though 
the  process  of  natural  selection  is  thereby  hampered." 

Again,  in  discussing  compulsory  insurance  and 
pensions,  he  says :  "There  are  certain  things  which 
society  must  do  in  justice  to  itself,  which  it  cannot 
safely  allow  individuals  to  demand  in  justice  to  them- 
selves. If  you  give  every  man  a  right  to  a  pension 
when  he  is  incapable  of  self-support,  you  tacitly  ap- 
prove his  failure  to  provide  for  himself  and  his  chil- 
dren. That  the  necessary  degree  of  production  and  of 
economy  by  the  community  as  a  whole  would  be  main- 
tained, if  such  a  point  of  view  were  adopted,  seems 
highly  improbable.  We  need  measures  which  shall 
increase  individual  responsibility  rather  than  diminish 
it;  measures  which  shall  giive  us  more  self-reliance 
and  less  reliance  on  society  as  a  whole.  We  cannot 
afford  to  countenance  a  system  of  morals  or  law  which 
justifies  the  individual  in  looking  to  the  community 
rather  than  to  himself  for  support  in  age  or  infirmity." 

It  will  not  be  denied  that  certain  persons  must 
and  should  be  supported  at  the  public  expense,  but  the 
fewer  there  are  of  these,  the  better  will  be  the  morals 
as  well  as  the  finances  of  the  community,  and  life 
insurance  is  continually  reducing  this  dependent  class. 
It  is  not  the  man  who  lives  to  old  age,  supports  and 
educates  his  children  and  saves  a  competency,  who 
contributes  to  the  class  who  are  applicants  for  public 
charity.  But  the  one  who  is  taken  away  while  his 
children  are  infants  and  who  has  not  had  the  time 


28  LECTURES  ON  LIFE  INSURANCE 

given  him,  no  matter  how  affectionate  and  thrifty  he 
may  be,  to  provide  for  their  needs,  is  a  liberal  contrib- 
utor to  the  orphan  asylum  and  the  almshouse.  He 
may  avoid  this  danger  by  postponing  marriage  for 
such  time  as  will  enable  him  to  accumulate  a  sufficient 
sum  to  insure  the  comfort  of  a  family,  but  neither  mor- 
ality nor  the  public  welfare  will  be  best  served  by 
the  establishment  of  such  a  principle.  There  is  but 
one  way  by  which  he  can  follow  the  course  which 
nature  intended  him  to  take,  and  that  way  is  open  to 
him  through  life  insurance.  By  the  payment  of  com- 
paratively small  sums  at  convenient  intervals,  he  can 
relieve  himself  of  the  responsibility  of  the  distress 
which  would  fall  upon  his  dependents  in  case  of  his 
premature  death,  and  he  can,  moreover,  provide  for 
his  own  future  in  case  he  should  survive  the  time 
when,  from  physical  weakness,  he  shall  become  inca- 
pacitated from  earning  his  own  subsistence. 

In  what  directions  and  to  what  extent  life  insur- 
ance promotes  the  best  family  life  it  is  difficult  to  prove. 
That  it  tends  to  increase  the  sense  of  responsibility 
which  leads  to  a  thoughtful  appreciation  of  affection 
and  duty  cannot  be  doubted.  That  man  who  enters 
upon  his  married  life  without  consideration  not  alone 
of  the  probabilities,  but  also  of  the  possibilities,  will 
find  himself  weighted  with  a  burden  which  he  cannot 
transfer  to  another,  and  which  will  consist  both  of 
the  necessity  of  self-denial  and  anxiety  for  the  future. 
The  first  will  develop  and  improve  his  character,  will 
stimulate  his  ambition  and  increase  his  efficiency,  but 
a  combination  of  the  two  will  dishearten  and  impede 
him  and  tend  to  cruelty,  intemperance  and  divorce, 
for  he  will  seek  to  transfer  to  others  that  for  which 
he  alone  is  responsible. 

Life  insurance  makes  immediately  available  the 
future  savings  of  a  lifetime,  and  it  is  this  element  of 
its  operations  which  is  its  most  common  and  prominent 
characteristic.  But  its  mission  cannot  be  fully  gauged 
without  an  understanding  that  it  has  another  feature 
less  used  but  not  less  useful.  It  has  been  shown  that 
in  a  large  number  of  human  beings  belonging  to  a 
known  class,  a  law  of  mortality  has  been  found  to 


LECTURES  ON  LIFE  INSURANCE  29 

exist,  and  this  has  been  used  through  life  insurance 
to  distribute  among  the  many  the  unexpected  disasters 
which  must  overtake  the  few,  and  which  would  other- 
wise bring  distress,  pauperism  and  crime. 

It  is  equally  true  that  out  of  the  many  some  will 
survive  to  old  age,  when  they  -will  have  reared  and 
educated  their  children  and  performed  their  whole 
duty  toward  them.  If  a  man  thus  situated  has  been 
fortunate  enough  to  accumulate  property,  the  income 
of  which  is  sufficient  to  maintain  him  independently  of 
other  aid,  his  natural  desire  and  duty  are  to  pass  on 
his  possessions  to  his  descendants,  who  will  thus  eventu- 
ally secure  his  surplus  earnings.  But  in  many  cases 
he  will  in  his  old  age  find  himself  alone,  his  duty  done, 
his  children  self-supporting  and  in  the  same  condition 
in  which  he  himself  was  in  his  youth,  while  the  inter- 
est on  his  savings  will  not  suffice  to  give  him  that  com- 
fort and  independence  to  which  he  is  fairly  entitled. 

Suppose  such  a  man  to  be  seventy-five  years  of 
age,  and  that  he  has  saved  $5,000.  If  this  is  invested 
at  4  per  cent,  it  will  yield  him  an  income  of  $200  a 
year.  This  will  not  provide  for  his  needs,  and  he  must 
depend  upon  others  for  a  part  of  his  support  if  he 
has  lost  his  earning  power,  or  he  must,  each  year, 
spend  a  part  of  his  principal,  with  a  possibility  of  liv- 
ing long  enough  to  exhaust  it  and  finally  to  become 
wholly  dependent.  By  the  operation  of  the  laws  of 
mortality,  life  insurance  can  take  this  amount  and  give 
him  an  income  of  $800  a  year  so  long  as  he  may  live. 

This  service  also  is  a  distinct  and  important  ele- 
ment in  the  family  life.  While  the  responsibility  which 
rests  upon  the  man  with  a  young  and  immature  fam- 
ily is  definite  and  unmistakable,  and  may  extend  to 
the  end  of  an  old  age,  involving  the  preservation  and 
transmission  of  any  property  he  may  have,  yet  in 
some  cases  independence  and  happiness  can  only  be 
secured  by  obtaining  by  means  of  life  insurance  the 
larger  and  sure  income  which  involves  the  investment 
of  the  principal  for  the  sole  benefit  of  its  owner. 

The  aged  parent  or  relative  who  is  no  longer  able 
to  earn  a  living,  and  who  has  become  a  charge  upon 
a  family  needing  all  its  resources  for  its  own  members, 


OF  THE 


30  LECTURES  ON  LIFE  INSURANCE 

is  often  an  unwelcome  guest,  while  this  same  one 
with  an  income  sufficient  for  his  maintenance  will  be 
an  object  of  care  and  solicitude. 

In  these  ways  does  life  insurance  serve  the  fam- 
ily in  guarding  against  the  losses  of  early  death  and  in 
providing  means  to  ameliorate  the  disadvantages  of 
old  age.  But  distributing  the  burden  of  the  few  among 
the  many  is  not  the  only  service  which  this  institution 
performs  for  the  family.  The  contracts  which  it  offers 
to  the  public  contain  not  only  the  element  of  protec- 
tion, but  of  accumulation  as  well.  The  savings  bank 
has  its  uses  and  has  played  an  important  part  in  the 
development  of  family  thrift,  but  the  payment  which 
is  called  for  at  stated  times  will  be  more  likely  to  be 
met  than  the  deposit  which  is  required  only  by  an 
indefinite  resolution.  That  the  habit  of  saving,  espe- 
cially if  it  be  for  others,  is  uplifting  and  tends  to 
strengthen  family  ties  does  not  need  demonstration. 

Carroll  D.  Wright  says  that  the  family  "must  be 
considered  as  the  crucial  social  unit — 'the  very  key- 
stone of  society' — for  it  results  from  happy  associa- 
tion of  the  sexes  by  which  the  human  species  is  per- 
petuated and  extended,  by  which  the  affections  are 
developed,  and  by  which  the  interest  which  compels 
one  unit  to  protect,  preserve  and  cherish  another,  is 
fostered.  It  should  be  the  purpose  of  society,  as  a 
whole,  to  protect  the  sacredness  and  integrity  of  that 
relation.  Without  the  family  unit  no  other  social 
units  .would  be  possible ;  it  brings  the  individual  out 
of  his  seclusion  into  ethical  relations,  constitutes  him 
a  living  evolutionary  force,  lifts  him  out  of  intensive 
selfishness  to  a  more  extensive  selfishness,  for  in  the 
family  relation  he  must  live  for  others,  although  in 
living  for  others  he  may  live  for  his  own  higher  enjoy- 
ment. The  purpose  of  the  individual  unit  in  entering 
social  relations  and  in  inviting  the  force  of  association 
is  to  secure  happiness.  He  may  be  well  fed,  warmed 
and  clothed,  while  in  the  disintegrated  state  of  the  indi- 
vidual, but  in  such  state  he  can  have  no  realization  of 
the  happiness  which  comes  from  appreciation  of  and 
service  to  others.  Hence  the  family  grows  out  of  the 
psychic  tendencies  of  men,  and  is  perhaps  the  best 


LECTURES  ON  LIFE  INSURANCE  31 

demonstration  of  the  highest  aspirations  of  the  indi- 
vidual. It  is  found  in  every  condition  of  population, 
whether  living  in  savagery,  in  barbarous  or  in  civil- 
ized communities.  It  is  the  fundamental  unit  of  civil- 
ized society." 

If  the  family  as  thus  described  be  thoughtfully 
considered,  it  will  be  apparent  that  life  insurance  is 
not  only  an  important  factor  of  this  social  unit,  but 
that  it  is  an  absolutely  essential  part  of  an  ideal  con- 
dition of  civilized  life. 


ECONOMICAL  FUNCTIONS  OF  INSURANCE 
WITH  RELATION  TO  THE  STATE 


(Delivered  in  Yale  University  Course) 


\\I OOLSEY  defines  a  state  as,  "A  community  of 
persons  living  within  certain  limits  of  territory 
under  a  permanent  organization  which  aims  to  secure 
the  prevalence  of  justice  by  self-imposed  law." 

It  is  clear  that  any  agency  which  improves  the 
mental  or  moral  attributes,  or  the  material  circum- 
stances of  any  one  of  its  citizens,  raises  the  condition 
of  the  community  of  which  he  is  a  member,  and  thus 
benefits  the  state.  Savings  banks  encourage  thrift  and 
produce  accumulations  which  would  in  many  cases 
be  otherwise  wasted,  and  thus  they  constitute  a  dis- 
tinct and  tangible  benefit  to  the  state.  Life  insurance 
promotes  a  sense  of  responsibility,  strengthens  family 
ties,  and  thus  elevates  the  general  character  of  the 
nation.  It  lessens  those  family  discords  which  end  in 
divorce,  it  checks  intemperance,  and  often  by  its  re- 
quirements brings  a  realizing  sense  of  the  benefits  of 
right  living.  The  very  restrictions  which  the  com- 
panies transacting  this  business  themselves  place  upon 
admission  to  membership  bring  a  clear  comprehen- 
sion of  the  result  which  temperate  living  has  upon  the 
length  of  life.  Careful  observation  has  shown  that  the 
intemperate  use  of  liquor  weakens  the  human  system, 
rendering  it  less  liable  to  withstand  disease,  and  thus 
shortens  life.  This  is  one  of  the  risks  which  life  insur- 
ance companies  strive  in  every  way  to  avoid.  Not 
only  are  searching  questions  asked  of  the  applicant  as 
to  his  habits  in  this  respect,  but  reports  are  often 
secured  from  independent  sources  as  to  his  custom  in 
the  use  of  liquor.  It  is  undoubtedly  the  case  that  many 
who  have  thoughtlessly  fallen  into  habits  of  intem- 
perate drinking,  without  realizing  its  ill  effects,  have, 


LECTURES  ON  LIFE  INSURANCE  33 

when  brought  face  to  face  with  the  requirements  of 
life  insurance,  changed  their  modes  of  life,  and  have 
become  not  only  sounder  physically,  but  improved  in 
financial  condition,  and  have  thus  become  more  valu- 
able citizens,  and  therefore  increased  the  prosperity 
of  the  state. 

The  physical  examinations  which  are  required  in 
all  cases  of  life  insurance  also  have  their  very  marked 
effect  upon  the  public,  for  until  the  true  meaning  of 
life  insurance  is  brought  home  to  an  applicant,  he 
seldom  comes  to  an  understanding  of  what  the  actual 
value  of  his  life  is,  and  how  much  this  value  is  in- 
creased if  the  length  of  his  life  can  be  prolonged. 
Weaknesses  and  ailments  not  before  known  are  often 
discovered,  and  remedies  are  applied  which  lengthen 
life,  and  thus  add  to  the  aggregate  value  of  the  state. 

There  can  be  no  doubt,  furthermore,  that  life 
insurance  curtails  the  expense  to  the  public  treasury 
of  almshouses  and  police,  of  criminal  courts  and  pris- 
ons, and  of  the  various  other  necessary  branches  of 
the  public  service  which  have  to  do  with  the  preven- 
tion and  punishment  of  crime,  and  the  relief  of  the 
suffering  and  unfortunate. 

Some  years  ago,  a  census  was  taken  of  the  paupers 
in  the  Philadelphia  almshouse,  with  the  result  that  of 
the  number  observed — 1,110 — only  three  were  found 
who  had  been  beneficiaries  of  life  insurance,  and  these 
to  the  extent  of  $6,000,  but  through  profligacy  or  im- 
providence they  were  reduced  to  a  state  of  pauperism. 
In  a  census  of  the  Montgomery  County  (Pa.)  alms- 
house, 133  were  examined  and  it  was  found  that  none 
of  these  people  or  their  families  ever  had  been  the 
beneficiaries  of  life  insurance. 

In  the  year  1902  there  was  distributed  to  the 
holders  of  life  insurance  policies  and  their  families 
in  death  claims,  matured  endowments,  and  annuities, 
by  the  life  insurance  companies  of  the  United  States, 
more  than  $140,000,000. 

It  is  certain  that  in  many  cases  the  proceeds  of  a 
life  insurance  policy  are  practically  all  that  remain  at 
the  death  of  the  one  responsible  for  the  support  of 
helpless  dependents,  and  in  a  vast  number  of  these 


34  LECTURES  ON   LIFE  INSURANCE 

cases,  were  it  not  for  this  aid,  many  persons  would 
be  forced  to  accept  public  charity.  There  can  be  no 
doubt  that  an  investigation  of  the  records  of  the  in- 
mates of  prisons,  and  of  asylums,  maintained  at  the 
public  expense,  for  the  care  of  those  made  helpless  by 
disease  and  old  age  and  unable  to  care  for  them- 
selves, would  show  that  with  rare  exceptions  they  do 
not  belong  to  that  class  from  which  the  membership  of 
life  insurance  companies  has  been  drawn. 

The  limits  of  this  discourse  do  not  permit  an 
exhaustive  analysis  of  the  influence  of  life  insurance 
upon  the  community,  nor  the  benefits  which  it  confers 
upon  the  living  on  the  one  hand  and  upon  dependents 
on  the  other.  Some  other  phases  of  the  subject  are 
of  such  importance  as  to  make  the  study  of  them  inter- 
esting and  useful  to  all  who  are  engaged  in  business, 
professional  or  political  life. 

The  state  long  ago  recognized  the  part  played  in 
its  affairs  by  this  institution,  and  the  peculiar  nature 
of  its  service,  by  enacting  laws  to  protect  the  family 
in  the  proceeds  of  life  insurance  policies  as  against 
the  claims  of  creditors.  As  early  as  1840,  the  state  of 
New  York  passed  an  act  in  substance  like  the  present 
law  in  that  and  other  states.  It  clearly  indicated 
that  the  government  was  justified  in  the  position  that 
the  duty  of  a  man  not  only  to  support  his  family 
during  his  lifetime,  but  also  to  provide  for  them  after 
his  death,  should  take  precedence  of  all  other  obliga- 
tions. This  law  as  it  now  stands  in  the  statute  book 
of  Connecticut  is  as  follows:  "Any  policy  of  life 
insurance  expressed  to  be  for  the  benefit  of  a  married 
woman,  or  assigned  to  her,  or  in  trust  for  her,  shall 
inure  to  her  separate  use;  or  in  case  of  her  decease 
before  payment,  to  the  use  of  her  children,  or  of  her 
husband's  children,  as  may  be  provided  in  such  policy. 
But  if  the  annual  premium  on  such  policy  shall  exceed 
$300,  the  amount  of  such  excess,  with  interest,  shall 
inure  to  the  benefit  of  the  creditors  of  the  person 
paying  the  premium." 

The  charters  of  some  of  these  companies  contain 
similar  provisions.  In  order  to  make  sure  that  the 
protection  provided  for  by  the  insured  shall  in  any 


LECTURES  ON  LIFE  INSURANCE  35 

event,  notwithstanding  his  own  pecuniary  condition, 
reach  those  persons  who  properly  look  to  him  for  sup- 
port, and  without  whose  protection  might  become 
charges  upon  the  public,  the  law  has  been  invoked 
both  in  the  statute  books  and  the  articles  of  incorpora- 
tion. 

The  business  of  life  insurance  is  transacted  exclu- 
sively by  corporations  deriving  their  powers  from  char- 
ters granted,  in  this  country,  by  the  governments  of 
the  various  states.  An  ordinary  contract  of  insurance 
is  a  promise  to  pay  a  given  sum  at  some  indefinite  fu- 
ture time,  in  consideration  of  the  present  payment  of 
a  certain  other  sum.  The  peculiar  character  of  this 
agreement  makes  possible  the  practice  of  deceptive 
and  unsound  methods,  to  an  extent  impracticable  in 
those  transactions  where  the  purchaser  can  more 
readily  examine  and  understand  the  real  nature  of  the 
thing  for  which  he  pays.  It  was  natural,  therefore, 
that  laws  should  be  passed,  intending  to  guard  the  pub- 
lic against  the  dishonesty  and  ignorance  of  the  man- 
agers of  these  institutions,  by  requiring  reports  of 
their  affairs  to  be  filed  with  public  officials.  The  state 
of  Massachusetts  in  1807  adopted  a  resolution,  requir- 
ing insurance  companies  to  render  an  account  of  their 
affairs  to  the  next  legislature.  In  1828  an  act  was 
passed  requiring  these  corporations  to  make  annual 
statements  to  the  comptroller,  and  in  1851  this  official 
was  given  authority  to  make  examinations  of  com- 
panies. 

Massachusetts  enacted  a  law  in  1854,  providing 
for  the  creation  of  an  insurance  department,  which  was 
organized  in  the  following  year  by  the  appointment 
of  three  commissioners,  whose  duty  it  was  to  examine 
the  reports  and  the  conditions  of  all  companies  doing 
business  in  the  commonwealth.  Other  states  have  fol- 
lowed the  example  set  in  the  East,  as  the  operations 
of  these  corporations  have  become  extended  and  en- 
larged, until  now  there  are  fifty-two  insurance  depart- 
ments, including  Alaska,  Porto  Rico  and  Hawaii. 

The  questions  asked  by  the  officials  in  charge  of 
these  departments  were  at  the  outset  comparatively 
few  in  number,  and  were  intended  to  show  only  in  a 


36  LECTURES  ON  LIFE  INSURANCE 

general  way  the  operations  of  these  companies.  The 
insurance  commissioners  many  years  ago  formed  an 
association  for  the  discussion  of  the  various  questions 
which  were  constantly  coming  before  them,  and  they 
now  hold  annual  conventions  at  which  new  thoughts 
have  been  from  time  to  time  brought  forward,  and  a 
uniform  blank  has  been  agreed  upon,  which  at  this 
time  is  in  use  by  nearly  all  of  the  departments. 

It  is  required  that  each  company  shall  state  in 
general  the  title  of  the  corporation,  the  date  when  it 
began  business,  its  location,  and  the  names  of  its 
officials.  The  details  of  its  business  are  then  gone  into 
with  very  great  minuteness.  It  must  give  the  amount 
of  new  or  first  year's  premiums  received  during  the 
year,  the  amount  of  renewal  premiums,  or  those  which 
are  paid  after  the  first  year  to  continue  policies  in  force, 
together  with  the  sums  received  for  annuities.  The 
interest  on  the  various  investments  is  required  to  be 
stated  in  detail,  together  with  any  profits  which  may 
have  been  secured  from  the  sale  of  assets. 

The  disbursements  are  also  called  for,  showing  the 
amounts  paid  for  claims  by  death,  for  matured  endow- 
ments, for  annuities,  surrender  values  and  dividends 
to  policyholders.  These  make  up  the  total  amount 
distributed  to  members  and  their  beneficiaries.  It  is 
also  required  to  state  the  amount  of  dividends  paid  to 
stockholders,  in  case  of  companies  having  capital  stock, 
the  commissions  to  agents,  separating  those  paid  for 
first  premiums  and  those  for  the  collection  of  renewals, 
salaries  and  allowances  to  agents,  agency  supervision, 
traveling  and  all  other  agency  expenses,  the  fees  of 
medical  examiners  and  for  the  inspection  of  risks, 
-salaries  and  all  other  compensation  of  officers  and 
home  office  employees,  rents,  advertising,  printing, 
postage,  legal  expenses,  the  amounts  paid  out  in  taxes, 
licenses  and  department  fees,  taxes  on  real  estate, 
repairs  and  expenses  of  real  estate. 

A  detailed  account  of  the  assets  of  each  company 
is  also  required,  showing  the  book  value  of  real  estate, 
and  a  statement  of  where  it  is  located,  mortgage  loans 
on  real  estate,  loans  on  the  company's  policies,  book 
value  of  its  stocks  and  bonds,  the  amount  of  cash  in 


LECTURES  ON  LIFE  INSURANCE  37 

the  office  and  in  banks,  interest  due  and  accrued  on 
mortgage  loans,  and  on  stocks  and  bonds,  and  on  pre- 
mium notes  or  policy  loans.  The  market  value  of 
stocks  and  bonds  compared  with  the  book  value  must 
also  be  stated,  the  outstanding  uncollected  premiums, 
both  new  and  renewal,  and  deferred  premiums,  i.  e., 
the  unpaid  portion  of  the  yearly  premiums  which  were 
not  due  at  the  close  of  the  year.  The  liabilities  must 
also  include  the  net  value  of  outstanding  policies  and 
annuities,  the  unpaid  losses  which  have  occurred  prior 
to  the  close  of  the  year,  specifying  which  are  due 
and  which  are  adjusted  and  not  due,  together  with  any 
claims  which  may  be  resisted,  dividends  to  policy- 
holders unpaid,  and  those  which  have  been  apportioned. 

Following  these  statements  of  operations,  a  de- 
tailed policy  showing  is  required :  the  number  of  these 
obligations  outstanding  at  the  end  of  the  previous  year, 
and  amount  represented  by  them,  separated  into  their 
various  classes  of  life,  endowment  and  term  insurances, 
the  issues  of  the  year,  including  revivals  and  increases, 
and  the  terminations  with  the  causes  by  death,  matur- 
ity, expiry,  surrender,  lapse,  decrease  and  not  taken. 
This  statement  indicates  the  outstanding  obligations 
at  the  time  of  the  report,  and  the  number  and  amount 
of  policies  reinsured  in  other  companies.  The  amount 
of  business  transacted  and  outstanding  in  the  particu- 
lar state  inquiring  is  also  required,  showing  premium 
receipts  and  claims  paid. 

In  addition  to  these  particulars,  a  list  is  called  for 
of  real  estate  owned,  showing  the  location  and  values ; 
any  securities  held  as  collateral  security,  together  with 
their  values  and  the  amount  loaned.  The  bonds  and 
stocks  owned  are  required  to  be  specified  in  detail, 
with  descriptions  which  will  enable  any  one  to  know 
exactly  what  these  securities  are. 

The  intention  of  these  requirements  is  to  show, 
first,  the  present  financial  condition  of  these  corpora- 
tions, by  exhibiting  so  far  as  possible  the  nature  of 
their  various  investments,  in  order  that  the  public  may 
know  the  general  plan  of  each  company  as  to  its  invest- 
ments. 

The  liabilities,   as  has  already  been  shown,  are 


38  LECTURES  ON  LIFE  INSURANCE 

based  upon  averages  and  estimates  as  to  the  length  of 
life  and  future  rates  of  interest,  and  while  a  mere 
statement  of  the  amount  of  these  calculations  cannot 
always  convey  an  accurate  idea  of  the  real  condition  of 
any  company,  it  is  safe  to  say  that  in  practically  all 
cases,  liabilities  are  calculated  upon  sound  principles ; 
that  is,  upon  a  table  of  mortality  less  favorable  than 
the  average  experience,  rates  of  interest  somewhat 
below  the  actual  receipts,  and  the  assumption  of  future 
premiums  considerably  less  in  amount  than  the  actual 
contracts  call  for,  so  that  any  company  which  has  a 
sufficient  amount  of  good  assets  to  cover  its  definite 
as  well  as  its  computed  liabilities  is  in  reality  financially 
sound,  and  able  to  meet  its  claims  as  they  mature. 

The  details  of  income  and  disbursements  which 
are  required,  and  which  through  these  departments  are 
given  to  the  public,  are  for  the  purpose  of  enabling 
each  one  to  judge  for  himself  as  to  the  wisdom  and 
economy  of  the  management  of  the  various  companies. 
While  mere  inspection  of  these  figures  will  not  always 
enable  one  to  arrive  at  a  true  comparison  between 
different  companies,  they  do  serve  to  show  important 
particulars  which  throw  much  light  upon  the  conduct 
of  these  institutions. 

In  considering  this  phase  of  state  supervision, 
while  the  items  which  are  required  to  be  given  by  all 
companies  may  seem  unnecessarily  numerous,  yet  it 
should  be  borne  in  mind  in  fairness,  that  it  is  not  alone 
the  old  and  strong  companies  whose  affairs  are  thus 
scrutinized,  but  those  other  institutions  which  may  still 
be  in  the  experimental  stage.  It  may  be  something 
of  an  indication  as  to  the  searching  qualities  of  these 
requirements  to  state  that  there  are  in  the  regular 
blank  three  questions  relating  to  ledger  assets  and 
capital  stocks  outstanding  at  the  beginning  of  any 
given  year ;  the  questions  as  to  income  number  29,  dis- 
bursements 31,  assets  36,  liabilities  25,  first  exhibit 
of  policies  24,  second  exhibit  23,  miscellaneous  18, 
premium  notes  10,  in  all  199,  not  including  the  details 
of  securities. 

For  filing  these  statements,  each  company  is  re- 
quired to  pay  various  fees,  in  many  cases  not  only 


LECTURES  ON   LIFE  INSURANCE  39 

sufficient  to  pay  all  the  expenses  of  the  department, 
but  to  leave  a  surplus  to  be  turned  over  to  the  treas- 
ury of  the  state.  This  kind  of  supervision  is  valuable 
in  many  ways,  for  it  seeks  to  place  before  the  public 
the  condition  of  each  company,  and  generally  enables 
any  one  interested  to  form  some  idea  as  to  the  respon- 
sibility and  management  of  these  corporations.  In  a 
recent  address  delivered  by  the  Commissioner  of  In- 
surance of  the  state  of  Wisconsin  occurs  the  follow- 
ing: "Each  state,  therefore,  has  extended  its  police 
powers  for  the  purpose  of  protecting  its  citizens.  Its 
laws  are  intended  not  only  to  protect  the  policyholders, 
but  to  keep  irresponsible  and  fraudulent  companies 
from  competing  with  honest,  .well-managed,  sound 
companies,  and  to  give  to  the  latter  official  endorse- 
ment by  the  state.  In  so  far,  no  one  can  object  to  the 
purposes  of  state  supervision ;  but  with  such  benefit  con- 
ferred on  the  people,  insurance  departments  have  be- 
come revenue  collecting  agencies  to  the  annoyance  and 
hardship  of  companies.  Supervision  means  not  only 
collecting  taxes  and  fees,  receiving  reports,  compil- 
ing and  printing  statistics,  valuing  policies  and  exam- 
ining companies,  but  includes  the  judicial  as  well  as  the 
executive  enforcement  of  the  statutes  under  which 
insurance  corporations  are  formed,  and  in  which  their 
powers  and  duties  are  defined  and  their  limitations 
presented.  This  requires  an  understanding  of  the 
principles  of  insurance,  the  functions  of  companies, 
and  the  relation  of  present  conditions  and  future  neces- 
sities. The  cost  to  the  companies  should  be  the  cost  of 
supervision.  The  cost  of  examination  should  be  im- 
posed upon  a  company  only  when  seeking  admission 
to  the  state.  When  once  admitted,  any  examination 
made  is  for  the  protection  of  the  people,  and  should 
be  borne  by  the  state.  Taxes,  when  imposed,  should 
be  for  the  purpose  of  enforcing  mutuality,  and  not 
for  revenue.  For  example:  We  impose  a  tax  upon 
life  insurance  premiums,  yet  the  business  of  life  insur- 
ance can  only  be  transacted  by  the  members  combining 
contributing  to  a  common  fund  to  insure  themselves, 
and  by  imposing  a  tax  upon  the  premium,  each  policy- 
holder in  a  mutual  company  is  paying  the  state  a  spe- 


40  LECTURES  ON  LIFE  INSURANCE 

cial  tax  for  the  privilege  of  relieving  the  state  from 
caring  for  his  dependents,  and  is  again  taxed  for  the 
purpose  of  caring  for  the  dependents  of  those  who 
carried  no  insurance." 

It  is  likely  that  by  reason  of  the  statements  made 
public  through  these  reports,  of  vast  sums  collected 
from  the  people,  a  system  of  taxation  has  grown  up, 
which  has  become  a  serious  burden  upon  members  of 
these  corporations,  whose  sole  object  it  is  to  provide 
for  future  necessities.  There  was  collected  in  the 
year  1902  from  life  insurance  companies  for  taxes 
more  than  $8,300,000,  by  far  the  greater  part  of  which 
was  the  tax  upon  premium  receipts.  It  will  not  be 
claimed  that  these  institutions  should  altogether  escape 
some  share  of  the  cost  of  maintaining  the  governments, 
yet  it  is  a  question  of  very  great  public  interest  as  to 
what  burden  of  this  kind  should  be  imposed  upon  this 
particular  class  of  institutions.  If  they  are  perform- 
ing the  public  service  which  is  claimed,  the  levying  of 
these  taxes  tends  to  check  the  spread  of  insurance,  by 
making  it  more  costly  than  it  otherwise  would  be. 
For  several  years  the  question  of  national  supervision 
has  been  widely  agitated,  and  while  it  is  not  at  all 
probable  that  the  various  states  will  relinquish  all 
supervision,  it  is  certainly  a  fair  question  whether 
the  public  good  will  not  be  served,  if  some  general 
supervision  can  be  substituted  for  a  considerable  part 
of  the  present  system,  to  the  great  saving  of  expense, 
without  impairing  the  value  of  the  present,  govern- 
mental inspection. 

An  examination  of  the  items  of  investment  is 
interesting  and  useful  as  indicating  the  influence  which 
these  accumulations  undoubtedly  have  upon  the  growth 
and  development  of  the  country.  The  loans  which 
these  companies  now  hold  upon  real  estate  securities 
amount  to  not  less  than  $600,000,000.  These  invest- 
ments have  enabled  the  owners  of  real  estate  in  cities 
to  improve  their  properties  by  building  dwellings  and 
business  blocks,  and  to  increase  and  extend  every  line 
of  business.  For  more  than  thirty  years  some  of  the 
life  insurance  companies  have  made  loans  upon  west- 
ern farming  lands.     These  have  enabled  the  farmers 


LECTURES  ON  LIFE  INSURANCE  41 

of  the  country  to  buy  land  and  to  cultivate  it,  to  erect 
necessary  buildings,  to  buy  stock,  and  to  continue  their 
operations  through  unfavorable  years.  It  is  certain 
that  these  institutions  have  been  largely  instrumental 
in  the  growth  of  the  farming  interest.  Lands  in  sec- 
tions .where  these  corporations  have  loaned  money 
have  very  greatly  increased  in  value,  largely  by  rea- 
son of  the  reduction  in  rate  of  interest  which  has  come 
through  the  increase  of  these  funds  seeking  invest- 
ment. Vast  sums  of  money  gathered  from  the  pay- 
ments of  policyholders,  and  held  and  improved  at  inter- 
est, solely  for  the  final  payment  of  claims,  have  been 
used  in  the  development  of  railroads  and  other  corpora- 
tions, and  to  improve  cities  and  towns.  Deposits 
in  banks  have  served  to  aid  commerce  and  have  been 
largely  instrumental  in  enabling  those  engaged  in 
various  lines  of  business  to  procure  funds  on  reason- 
able terms. 

Life  insurance  exists  for  the  purpose  of  repairing 
the  loss  occasioned  by  the  death  of  an  individual  who 
can  produce  more  than  the  cost  of  subsistence.  This 
has  been  shown  in  individual  cases,  and  it  has  also  been 
demonstrated  how  such  value  can  be  reached  in  any 
particular  instance.  In  considering  the  relations  which 
life  insurance  bears  to  the  state,  it  is  necessary  to  take 
such  aggregates  as  can  be  ascertained,  and  to  point 
to  certain  conclusions.  The  conditions  which  prevail 
in  Connecticut  may  be  used  as  a  fair  example.  It  is 
shown  by  the  census  of  1900  that  there  were  385,610 
persons  in  Connecticut  engaged  in  all  occupations ; 
of  this  number,  186,675,  or  somewhat  less  than  one- 
half,  were  engaged  in  manufacturing,  and  the  amount 
paid  by  these  establishments  in  wages  and  salaries 
during  the  year  1900  was  $95,053,775-  Of  this  amount 
it  is  probably  within  the  fact  to  assume  that  two- 
thirds,  or  say  $60,000,000,  was  expended  in  the  sup- 
port of  others  than  those  earning  this  income.  If  it 
is  assumed  that  the  average  age  of  these  producers  is 
thirty  years,  and  that  the  present  value  of  an  annuity 
at  that  age  is  $17.00,  and  that  on  the  whole  the  mor- 
tality among  these  persons  will  follow  the  table  rate, 
it  appears  that  this  income  represents  a  present  value 


42  LECTURES  ON  LIFE  INSURANCE 

of  future  earnings  of  more  than  a  thousand  million  dol- 
lars, any  portion  of  which  capital  is  liable  to  be  cut 
off  in  any  hour  of  any  day.  But  these  figures  apply 
only  to  those  engaged  in  one  branch  of  labor,  and  this 
probably  on  the  whole  less  remunerative  than  the 
sum  total  of  other  occupations.  It  is  not  claimed  that 
these  estimates  even  approach  accuracy,  but  it  seems 
reasonable  to  believe  that  they  are  within  facts. 

The  grand  list  of  Connecticut  in  the  year  1900 
amounted  to  $694,000,000.  This  represents  the  amount 
of  property  subject  to  direct  taxation  in  the  State,  by 
far  the  greater  part  of  it  consisting  of  real  estate  and 
buildings.  Theoretically  these  properties  are  placed 
in  this  list  at  somewhat  less  than  their  actual  value, 
but  it  is  doubtful  if  taking  the  whole  state  together, 
the  value  of  real  estate  and  buildings  is  materially 
greater  than  that  placed  upon  them  in  the  grand  list. 

From  the  estimates  which  have  here  been  made, 
there  can  be  no  doubt  whatever  that  the  present  val- 
ue of  the  future  earnings  of  those  engaged  in  various 
occupations  in  this  state  is  many  times  the  amount 
of  the  grand  list. 

The  material  wealth  of  a  state  not  only  depends 
upon  its  citizens,  but  by  far  the  greater  part  of  the 
real  resources  of  the  commonwealth  is  composed  of  the 
actual  computable  value  of  the  lives  of  its  inhabitants. 

The  report  of  the  Insurance  Commissioner  of 
Connecticut  for  the  year  1900  shows  that  there  were 
at  the  close  of  that  year,  life  insurance  policies  out- 
standing on  lives  of  citizens  of  the  state  representing 
$149,970,752  of  insurance.  Some  of  these  have  been 
in  force  for  many  years,  and  it  is  certain  that  the 
average  age  of  these  policyholders  is  much  higher 
than  that  of  the  general  population.  Assuming  it  to 
be  fifty,  it  appears  that  this  amount  of  insurance  rep- 
resents an  income  which  it  is  intended  to  protect  of 
about  $12,000,000.  It  is  evident  that  this  protection 
is  far  less  than  the  amount  at  risk,  and  that  the  com- 
munity is  therefore  constantly  sustaining  losses  by 
death,  which  are  repaired  only  to  a  comparatively 
small  degree.  The  life  insurance  agent  is  supposed 
to  prosecute  his  business  thoroughly,  but  he  will  not 


LECTURES  ON  LIFE  INSURANCE  43 

accomplish  his  full  mission  until  the  education  of  the 
public  has  proceeded  to  a  point  where  the  real  pur- 
pose and  the  actual  benefits  of  life  insurance  are  far 
better  understood  than  they  are  at  this  time. 

The  propriety  of  taxing  the  income  or  accumula- 
tions of  life  insurance  companies  has  led  to  many  dis- 
cussions of  the  relations  of  these  institutions  to  the 
state,  and  to  an  expression  of  opinion  by  many  emi- 
nent men  who  have,  by  reason  of  such  propositions, 
given  much  study  to  this  question. 

In  a  debate  on  an  Income  Duty  Bill  in  the  House 
of  Commons  in  1798,  Pitt  said:  "Laying  aside  the 
proud  idea  of  the  vigor,  permanence  and  renewing 
energy  which  the  measure  secured,  there  is  one  case 
which,  with  a  view  to  the  class  who  are  really  willing 
to  save  for  the  benefit  of  those  for  whom  they  are 
bound  to  provide,  makes  some  modification.  It  is  in 
favor  of  those  who  have  recourse  to  that  easy,  certain 
and  advantageous  mode  of  providing  for  their  fam- 
ilies by  insuring  their  lives." 

In  1862,  when  this  country  was  seeking  means  for 
meeting  the  extraordinary  expenditures  occasioned 
by  the  war,  and  the  question  of  taxing  insurance  com- 
panies was  before  Congress,  Charles  Sumner  said : 
"The  business  of  insurance,  it  seems  to  me,  is  peculiar. 
It  differs  from  other  business.  It  is  not  strictly,  if 
I  may  say  so,  a  money-making  business,  but  it  is  a 
money-saving  business.  I  know  that  persons  get  up 
insurance  companies  in  order  to  advance  their  own 
interests :  but  the  primary  object  of  the  insurance  office 
is  to  protect  other  people,  and  particularly  the  poor: 
it  is  to  help  the  poor.  I  say,  therefore,  it  is  not  pri- 
marily, as  compared  with  many  other  businesses,  a 
money-making  business.  On  this  account,  it  seems 
to  me,  it  has  a  title  to  a  certain  consideration.  Now, 
what  is  proposed?  A  tax  on  the  premium.  What  are 
the  premiums?  The  premiums  are  themselves  a  tax. 
The  premiums  constitute  the  tax  which  the  person 
insured  pays  for  his  insurance:  and  now  it  is  pro- 
posed to  put  a  tax  on  a  tax.  This  is  the  precise  case. 
I  state  it  in  this  way  in  order  to  simplify  it ;  in  order 
to  reduce  it,  if  I  may  say  so,  to  its  most  naked  form." 


44  LECTURES  ON  LIFE  INSURANCE 

Francis  A.  Walker  has  said :  "If  a  man's  income 
belongs  to  him  to  spend,  it  belongs  to  him  to  save: 
and  on  the  ground  of  equity,  the  state  cannot  lay  its 
hands  upon  that  which  represents  the  double  virtue 
of  industry  and  frugality,  while  sparing  that  which 
represents  the  single  virtue  of  industry.  Economically 
considered,  there  cannot  be  a  moment's  question  that 
the  policy  of  laying  the  burden  of  the  state  upon 
that  portion  of  the  product  of  industry  which  has 
escaped  the  maw  of  appetite,  which  is  presumably 
reserved  for  useful  employment,  which  is  in  a  sense 
consecrated  by  worthy  social  ambition  and  which  rep- 
resents the  courage,  prudence  and  faith  requisite  to 
subordinate  the  present  to  the  future,  is  thoroughly 
vicious." 

Two-thirds  of  the  adult  men  and  women  of  this 
country  are  married.  Some  of  the  remainder  are 
physically  or  mentally  unfit  for  the  marriage  state, 
but  it  cannot  be  doubted  that  whatever  agency  increases 
marriages,  among  those  who  only  postpone  this  act 
because  of  a  natural  and  prudent  apprehension  of  the 
results  which  death  may  bring,  promotes  the  well- 
being  and  increases  the  happiness  of  the  community. 
There  is  no  way,  except  through  life  insurance,  that 
many  suitable  and  advantageous  marriages  can  be 
entered,  into  with  a  due  regard  for  the  happiness  of 
the  individuals  directly  interested,  and  for  the  pro- 
tection and  welfare  of  the  state. 

The  public  treasury  must  be  supplied  by  those  who 
are  benefited  by  the  expenditure  of  public  money. 
Churches  and  schools  lessen  crime  and  pauperism,  and 
thus  diminish  public  expense.  Their  influence  is 
rightly  considered  in  distributing  the  burdens  of  tax- 
ation. In  considering  this  question,  which  is  of  great 
and  increasing  importance,  a  knowledge  not  only  of 
the  theory  of  life  isurance,  but  also  of  what  it  is 
accomplishing  and  of  its  possibilities,  will  be  of 
advantage  to  everyone  who  seeks  to  do  his  share  for 
the  uplifting  of  the  state  of  which  he  is  a  part. 


LEGISLATION  IN  LIFE  INSURANCE 


(Delivered  in  Yale  University  Course) 


(Copyright,  Phoenix  Mutual  Life  Insurance  Company. ) 


PO  form  an  intelligent  opinion  of  the  wisdom  of 
present  and  the  need  of  additional  laws  in  this 
country  it  is  necessary  to  consider  the  theory  of 
the  federal  government  and  its  relation  to  the  sepa- 
rate states,  and  to  reflect  upon  the  characteristics 
of  human  nature,  in  order  to  determine  what  legal 
restraints  will  best  protect  those  who  need  and  are 
entitled  to  the  shelter  of  the  law,  without  at  the 
same  time  fostering  a  sentiment  of  dependence 
upon  governmental  care  destructive  of  true  liberty 
and  independence. 

In  a  sermon  preached  in  Hartford  in  1638,  it 
was  announced  that  "the  foundation  of  authority 
is  laid,  firstly,  in  the  free  consent  of  the  people." 
Upon  this  and  other  doctrines  of  liberty  laid  down 
in  this  discourse  rests  the  Constitution  which  was 
framed  in  the  following  year,  and  which  was  the 
first  written  document  creating  a  government  in  the 
world's  history. 

The  Declaration  of  Independence  in  1776  pro- 
claimed "that  all  men  are  created  equal,  that  they 
are  endowed  by  their  Creator  with  certain  inalienable 
rights,  that  among  these  are  life,  liberty  and  the 
pursuit  of  happiness.  That  to  secure  these  rights 
governments  are  instituted  among  men  deriving 
their  just  powers  from  the  consent  of  the  governed." 

CONSTITUTIONAL  GUARANTIES 

The  Constitution  of  the  United  States  adopted 
in  1789  guarantees  to  all  citizens  equal  rights  and 
liberty,  which  may  be  defined  as  "freedom  from 
all  restraints  except  such  as  the  lawful  rights  of 
others   prescribe."     It    is   the    clear    intent    of   the 


46  LECTURES  ON   LIFE  INSURANCE 

whole  theory  of  the  government  of  the  United 
States,  that  the  individual  citizen  shall  be  permitted 
to  pursue  such  lawful  occupations  as  he  may  choose 
to  engage  in,  and  that  no  restrictions  shall  be  placed 
upon  his  acts,  except  those  which  may  be  necessary 
for  the  protection  of  society  and  which  are  denned 
by  legislators  of  his  own  selection.  He  certainly 
may,  if  he  pleases,  devote  his  energies  to  any  number 
of  different  lines  of  business,  and  he  may  invest 
his  accumulations  in  whatever  way  may  suit  his 
needs  or  his  fancy.  He  can  employ  a  large  capital 
or  none  at  all,  can  borrow  at  will,  can  acquire  prop- 
erty of  any  kind,  to  any  amount.  His  accounts  do 
not  concern  any  one  but  his  creditors.  He  requires 
no  legislative  permission  to  manufacture  or  buy  as 
cheaply  as  he  can  and  to  sell  at  any  prices  which  he 
may  induce  others  to  pay.  The  laws  of  supply  and 
demand,  and  the  results  of  competition  are  relied 
upon  to  regulate  values.  The  buyer  must  rely  upon 
his  own  observation  and  care  to  protect  him  against 
extortion.  He  reaps  the  reward  of  study  and  in- 
vestigation, or  he  suffers  the  penalty  of  ignorance 
and  carelessness,  and  is  thus  taught  by  experience 
the  value  of  those  qualities  which  make  a  successful 
and  valuable  citizen. 

INSURANCE  CORPORATIONS 

The  business  of  insurance  is  transacted  by 
corporations  created  by  and  deriving  their  powers 
from  the  states.  A  corporation  is  an  artificial 
person  created  by  law,  or  under  authority  of  law, 
from  a  group  or  succession  of  natural  persons  and 
having  a  continuous  existence,  irrespective  of  that 
of  its  members,  and  powers  and  liabilities  different 
from  those  of  its  members. 

Insurance  is  based  on  averages,  and  steady  and 
reliable  results  can  only  be  obtained  when  the  num- 
ber of  risks  is  larger  than  could  be  safely  assumed  by 
an  individual  with  the  capital  which  he  could  com- 
mand, or  which  he  would  be  willing  to  hazard  in 
such  an  undertaking.  But  more  especially  must 
this  business  be  done  by  corporations,  because  those 


LECTURES  ON  LIFE  INSURANCE  47 

interested  in  policies  of  insurance  cannot  safely 
depend  upon  the  continuance  of  the  life  of  a  human 
being  for  the  final  payment  of  an  obligation  which 
may  not  mature  for  many  years. 

The  charters  of  these  institutions  may  be  special 
or  general  acts  of  a  legislature,  but  in  either  case 
the  articles  of  incorporation  set  forth  in  detail  the 
exact  nature  of  the  transactions  which  may  be 
legally  undertaken. 

The  legislature  of  a-  state  is  composed  of  in- 
dividuals elected  for  the  purpose  of  enacting  laws 
which  could  not  be  intelligently  framed  by  the 
whole  people,  but  which  are  intended  to  be  for  their 
protection  or  benefit. 

GRANTING  OF  CHARTERS 

A  special  charter  is  a  law  permitting  certain 
persons  to  engage  in  some  enterprise  which,  though 
it  may  bring  advantage  to  its  promoters,  will  also 
be  of  service  to  the  general  public.  In  granting 
such  a  charter,  the  state  does  not  guarantee  the 
success  of  the  undertaking  by  pledging  the  public 
credit,  but  it  does  set  the  stamp  of  its  approval  on 
the  character  of  the  business  to  be  transacted,  and 
in  return  for  this  puts  such  limitations  and  requires 
such  publicity  as  will  best  guard  against  those  evils 
which  may  come  from  great  combinations  of  capital 
and  corporate  greed.  A  legislature  which  is  elected 
for  the  sole  purpose  of  acting  for  the  whole  people 
has  no  right  to  grant  a  franchise  which,  by  per- 
mitting public  property  to  be  taken  or  sued  without 
an  adequate  return,  or  by  giving  any  advantage  over 
individual  effort,  enables  its  possessors  to  make 
unusual  profits  or  enjoy  any  gains  except  those 
which  legitimately  belong  to  industry,  skill  and  fair 
dealing. 

It  must  be  assumed  that  it  is  advantageous  to 
the  whole  people  that  they  should  be  able  to  secure 
the  protection  afforded  by  insurance  companies; 
that  is,  that  the  loss  of  the  individual  shall  be  dis- 
tributed by  the  contributions  of  many. 
?  v;  While  charters  specify  what  varieties  of  busi- 
ness  may   be  undertaken,   and   often   designate   in 


48  LECTURES  ON  LIFE  INSURANCE 

what  manner  it  may  be  done,  yet  there  are  seldom 
definite  limitations  as  to  forms  of  policies,  amount 
of  premiums,  rate  of  expense,  investments,  or  any 
of  these  details  which  make  up  the  transactions  of 
these  corporations.  These  have  been  regulated 
from  time  to  time  by  general  laws. 

THE  STATE'S  RIGHT 

A  state  has  the  right  not  only  to  dictate  the 
methods  of  its  own  companies,  but  it  also  has  the 
power  to  specify  in  what  way  a  foreign  corporation 
seeking  to  do  business  with  its  citizens  shall  conduct 
its  affairs,  so  long  as  these  conditions  do  not  conflict 
with  the  privileges  granted  by  the  federal  Constitu- 
tion. In  fact,  it  is  well  settled  that  a  state  may 
lawfully  demand  that  a  foreign  corporation  shall 
agree  to  waive  certain  constitutional  rights  which  it 
would  naturally  have,  before  granting  it  a  license  to 
be  represented  within  its  borders.  United  States 
courts  exist  for  the  purpose  of  securing  justice  in 
cases  where  local  prejudice  or  influence  might  pre- 
vent unbiased  decisions.  Many  states  require  as  a 
condition  precedent  to  admission,  that  an  insurance 
company  shall  agree  that  it  will  submit  to  the  juris- 
diction of  local  courts. 

How  far  the  public  good  is  served  by  general 
laws  restricting  and  regulating  the  conduct  of  these 
corporations  is  a  complicated  and  serious  question. 

Violations  of  the  laws  of  health,  excesses  in 
eating  and  drinking,  bring  their  sure  results  in 
causing  disease  and  shortening  human  life.  In 
this  way  they  diminish  the  aggregate  of  the  country's 
wealth,  for  the  value  of  the  lives  of  a  community 
is  far  greater  than  that  of  all  its  other  possessions. 
Certain  articles  of  food  and  drink  are  well  known 
to  be  unwholesome,  but  to  prevent  by  law  the  use 
of  these  is  not  only  an  unwarrantable  interference 
with  personal  liberty,  but,  what  is  perhaps  even 
more  important,  such  legislation  would  tend  to 
impair  the  value  of  that  strength  of  character  which 
can  only  come  from  self-reliance.  It  is  proper 
that  people   should  be  protected  against  many   of 


LECTURES  ON  LIFE  INSURANCE  49 

those  perils  which  they  cannot  measure  themselves, 
but  it  is  demoralizing  to  teach  them  that  the  laws 
will  relieve  them  of  those  risks  which  it  should  be 
a  part  of  their  education  to  measure  and  meet. 

A  state  which  charters  and  to  a  certain  extent 
endorses  a  corporation  may  well  regulate  its  opera- 
tions in  such  ways  as  will  protect  the  public  against 
those  dangers  which  they  cannot  measure,  leaving 
reasonable  freedom  of  action  in  accordance  with 
the  spirit  of  a  free  country. 

An  insurance  company  is  a  peculiar  institu- 
tion in  that  its  liabilities  cannot  be  measured  with 
accuracy,  but  can  only  be  estimated,  and  claims 
will  be  due  at  wholly  uncertain  times  in  the  near 
and  distant  future. 

TAXES— LEGISLATIVE  RESTRICTION 

Bearing  in  mind  the  elements  which  go  to 
make  up  this  business,  the  matter  of  legislative 
restriction  presents  a  difficult  problem.  It  must 
be  remembered  that  in  insurance  no  values  are 
created;  they  are  only  distributed,  and  whatever 
a  company  distributes  must  be  collected.  Any 
taxes  which  are  imposed  upon  these  corporations 
are  paid  by  their  policyholders,  whose  insurance 
costs  them  that  much  more  than  it  otherwise  would. 
The  expense  of  administering  the  affairs  of  such  an 
institution  is  also  borne  by  the  policyholders,  and 
any  unnecessary  cost  which  is  entailed  by  any  of 
the  requirements  of  the  law  is  adding  that  much 
to  the  amount  which  is  paid  for  this  protection. 

It  is  quite  clear  that  the  public  should  be  pro- 
tected, so  far  as  this  can  be  done,  against  the  in- 
solvency of  insurance  companies.  Before  one  enters 
a  theatre  or  a  hotel,  it  would  be  well  if  he  could 
himself  examine  the  safety  of  the  building,  but 
since  this  is  out  of  the  question,  the  next  best  thing 
is  a  building  law.  It  would  certainly  be  desirable 
before  one  takes  a  policy  of  insurance  if  he  could 
personally  examine  the  company  in  which  he  pro- 
poses to  insure,  but  as  this  cannot  ordinarily  be 
done,  it  is  proper  to  have  laws  which  shall  require 
these   companies   to   be    safe,    and   also   that   their 


50  LECTURES  ON  LIFE  INSURANCE 

affairs  shall  be  made  public,  in  order  that  each  one 
may  have  the  opportunity  of  forming  an  intelligent 
opinion  as  to  the  responsibility  of  the  insurer. 

There  is  no  more  inexorable,  economic  fact 
than  that  unwise  and  unsound  legislation  will  either 
raise  the  cost  of  insurance  or  drive  companies  out 
of  the  business. 

While  there  are  many  elements  of  similarity 
in  the  rights,  privileges  and  duties  of  corporations 
engaged  in  the  various  branches  of  insurance,  the 
subject  of  legislative  control  is  so  complex  that  it 
will  be  best  at  this  time  to  consider  only  one  branch 
of  this  business,  namely,  life  insurance. 

LIMITATIONS  AND  REQUIREMENTS 
IN  LIFE  INSURANCE 

It  would  be  interesting  to  trace  the  causes 
and  history  of  the  laws  which  have  from  time  to 
time  been  placed  on  the  statute  books  of  the  differ- 
ent states,  but  for  the  present  discussion  it  need 
only  be  said  that  the  principal  limitations  and  re- 
quirements are  of  comparatively  recent  date,  and 
may  be  divided  into  two  classes:  Those  which 
are  definitely  laid  down  by  law,  and  those  which 
are  created  by  the  public  officers  who  are  charged 
with  the  supervision  of  these  corporations;  but 
though  appeals  may  be  taken  from  the  demands 
of  these  officials,  such  a  course  is  rarely  resorted 
to,  and  the  two  may  well  be  considered  together. 

The  state  insurance  commissioners  have  for 
many  years  met  in  annual  convention  for  the  pur- 
pose of  determining  in  what  way  they  can  best 
protect  the  public  and  the  companies,  for  one  can- 
not in  the  end  flourish  at  the  expense  of  the  other. 
Every  state  in  which  a  company  does  business 
requires  it  to  file,  among  other  documents,  an  annual 
statement,  and  much  time  and  ingenuity  has  been 
devoted  by  the  commissioners  to  framing  questions 
which  will  disclose  the  real  condition  of  these  com- 
panies and  their  yearly  progress.  Publicity,  if 
it  can  be  secured  in  such  form  as  to  be  intelligible 
to    the    average    citizen    without    misleading    him, 


LECTURES  ON  LIFE  INSURANCE  51 

is  perhaps  the  most  effective  means  of  guarding 
against  fraud,  extravagance  and  ignorance,  and 
at  the  same  time  fostering  qualities  of  thought 
and  care  among  the  people. 

The  annual  statement  is  now  required  to  be 
made  in  form  developed  by  and  agreed  upon  by 
practically  all  insurance  commissioners.  It  is  an 
elaborate  affair,  and  requires  not  only  the  details 
which  would  ordinarily  be  kept  by  a  careful  and 
systematic  concern,  but  also  many  involving  much 
expense,  the  value  of  which  is,  to  say  the  least, 
doubtful. 

INVESTMENTS 

Inasmuch  as  policies  of  life  insurance  in  many 
cases  run  for  long  periods,  and  because  a  company 
once  issuing  a  policy  has  no  power  to  increase  the 
premium  or  change  any  of  its  conditions,  it  is  of 
the  utmost  importance  that  such  a  corporation 
should  always  be  in  condition  to  meet  policy  obli- 
gations which  may  not  mature  for  many  years. 
In  a  bank  the  depositor  always  has  the  right — which 
he  frequently  exercises — to  withdraw  his  money, 
but  in  a  life  insurance  company,  payments  are 
supposed  to  provide  for  a  sum,  the  date  of  the 
payment  of  which  is  altogether  uncertain.  The 
fund  which  is  to  make  good  the  policy  reserves 
must,  therefore,  be  invested  with  peculiar  care, 
and  at  a  rate  of  interest  which  has  some  relation 
to  the  rate  at  which  the  reserves  are  running.  For 
these  reasons  it  seems  to  be  entirely  proper  that 
laws  should  be  enacted  limiting  the  investments 
of  such  a  company  to  those  securities  which  will 
meet  the  peculiar  requirements  of  this  business. 

While  no  law  can  compel  intelligence  and  skill 
in  the  management  of  any  corporation,  yet  it  is 
proper  that  the  statutes  should  set  up  a  basis  for 
calculating  the  future  liabilities  assumed.  Such 
laws  are  now  common  and  require  a  sufficient  amount 
of  assets  to  be  held  to  cover  liabilities  calculated 
on  some  standard  mortality  table,  and  at  a  rate 
of  interest  which  will  probably  be  received  in  the 
future. 


62  LECTURES  ON  LIFE  INSURANCE 

NEW  BUSINESS 

It  has  not  been  until  recently  that  state  govern- 
ments have  attempted  to  fix  the  limits  to  which 
life  insurance  companies  may  go  in  incurring  ex- 
pense in  securing  new  business,  and  in  conducting 
the  entire  affairs  of  these  corporations.  The  state 
of  New  York  in  the  year  1906  enacted  a  law  of 
this  kind,  defining  these  expenses  for  the  companies 
chartered  by  the  state  itself,  and  furthermore  pro- 
viding that  no  foreign  company  could  do  business 
in  that  state  unless  it  should  conduct  its  affairs  on 
the  lines  laid  down  in  the  law  for  domestic  com- 
panies. This  law  was  announced  to  be  for  the 
benefit  of  the  policyholders  of  those  companies, 
and  it  is  a  question  which  is  worthy  of  considera- 
tion whether  it  is  a  proper  thing  for  a  legislature 
representing  the  whole  people  to  make  laws  for  a 
special  class,  unless  it  can  be  shown  clearly  that 
the  good  of  the  entire  public  is  served. 

In  considering  the  propriety  of  laws,  it  must  be 
remembered  that  if  all  men  were  good,  laws  fixing 
penalty  for  crimes  would  be  wholly  unnecessary. 
There  are  men  who  do  not  need  laws,  and  there  are 
life  insurance  companies  which  do  not  need  them; 
but  this  class  of  companies  can  well  afford  to  incur 
reasonable  trouble  and  expense  for  the  general 
good,  if  by  so  doing  deception  can  be  prevented 
and  the  careless  and  ignorant  protected. 

It  cannot  be  doubted  by  anyone  who  contem- 
plates the  character  and  condition  of  the  people, 
that  an  expansion  of  life  insurance  far  beyond  its 
present  limits  would  be  of  infinite  benefit  to  the 
country  in  mitigating  the  losses  occasioned  by 
premature  deaths,  and  instilling  an  appreciation 
of  the  responsibilities  of  the  marriage  state.  But 
life  insurance  must  be  carried  to  those  who  need 
it  most,  and  like  every  other  business,  those  engaged 
in  it  must  be  paid.  The  holders  of  policies  can 
afford  to  pay  not  only  for  the  risk,  but  a  reasonable 
sum  for  expenses.  Rather  than  be  without  it, 
they  can  afford  to  pay  liberally  to  have  it  brought 
to   them.     But   even   a   good   thing   may    cost   too 


LECTURES  ON  LIFE  INSURANCE  53 

much.  Cost  is  usually  regulated  by  the  laws  of 
supply  and  demand,  and  competition,  and  it  is 
worth  considering  whether  life  insurance  can  safely 
be  left  to  work  out  its  own  results. 

This  business  offers  a  tempting  field  for  the 
legislator. 

"LEGISLATIVE  EXPERIMENTS" 

In  treating  of  a  phase  of  American  tendencies, 
James  Bryce  says: 

"And  in  the  state  legislatures  they  possess 
bodies  with  which  it  is  easy  to  try  legislative  experi- 
ments, since  these  bodies,  though  not  of  themselves 
disposed  to  innovation,  are  mainly  composed  of 
men  unskilled  in  economics,  inapt  to  foresee  any 
but  the  nearest  consequences  of  their  measures, 
prone  to  gratify  any  whim  of  their  constituents, 
and  open  to  the  pressure  of  any  section  whose  self- 
interest  or  impatient  philanthropy  clamors  for  some 
departure  from  the  general  principles  of  legislation. 
For  crotchet  mongers  as  well  as  for  intriguers  there 
is  no  such  paradise  as  the  lobby  of  a  state  legislature. 
No  responsible  statesman  is  there  to  oppose  them, 
no  warning  voice  will  be  raised  by  a  scientific  econ- 
omist. Thus  it  has  come  to  pass  that,  though  the 
Americans  have  no  theory  of  the  state  and  take 
a  narrow  view  of  its  functions,  though  they  con- 
ceive themselves  to  be  devoted  to  *  laissez  faire ' 
in  principle,  and  to  be  in  practice  the  most  self- 
reliant  of  peoples,  they  have  grown  no  less  accus- 
tomed than  the  English  to  carry  the  action  of  govern- 
ment into  ever-widening  fields.  Economic  theory 
did  not  stop  them,  for  practical  men  are  proud  of 
getting  on  without  theory.  The  sentiment  of  in- 
dividualism did  not  stop  them,  because  state  inter- 
vention has  usually  taken  the  form  of  helping  or 
protecting  the  greater  number,  while  restraining 
the  few;  and  personal  freedom  of  action,  the  love 
of  which  is  strong  enough  to  repel  the  paternalism 
of  France  or  Germany,  has  been  infringed  upon  only 
at  the  bidding  of  a  strong  moral  sentiment  such  as 
that  which  condemns  intemperance.  So  gradual 
has  been  the  transition  of  this  new  habit,  that  few 


54  LECTURES  ON  LIFE  INSURANCB 

but  lawyers  and  economists  have  yet  become  aware 
of  it,  and  the  lamentations  with  which  old-fashioned 
English  thinkers  accompany  the  march  of  legisla- 
tion are  in  America  scarcely  heard  and  wholly  un- 
heeded. 

"As  the  field  of  ordinary  private  law  and  admin- 
istration belongs  to  the  states,  it  is  chiefly  in  state 
legislation  that  we  must  look  for  instances  of  govern- 
mental intervention.  Recent  illustrations  of  the 
tendency  to  do  by  law  what  men  were  formerly  left 
to  do  for  themselves,  and  to  prohibit  by  law  acts 
of  omission  and  commission  which  used  to  pass 
unregarded,  might  be  culled  in  abundance  from  the 
statute  books  of  nearly  every  commonwealth." 

SAFETY  ONLY  IN  WIDER  COMPREHENSION 

The  question  may  fairly  be  asked  -whether  the 
burdens  and  restrictions  placed  upon  life  insurance 
are  worth  what  they  cost,  and  if  they  are  not,  how 
they  are  to  be  modified.  There  is  every  reason  to 
believe  that  they  come  from  a  failure  on  the  part 
of  the  intelligent  public  to  comprehend  principles 
and  scope  of  this  business.  Its  prosperity  and 
safety  lie  in  that  education  which  has  been  rapidly 
spreading  and  which  can  be  guided  into  the  right 
path  by  men  whose  intelligence  and  standing  fit 
them  to  lead  the  people  to  a  comprehension  of 
what  this  institution  can  do  in  the  development 
of  civilization. 


WHAT  IS  INSUKANCE? 


Many  Forms  of  Its  Beneficence 
Recommendations  for  Remedy  of  Its  Evils 


{Delivered  before  the  Economic  Club  of  Providence,  R.  I.) 


AAThAT  is  insurance  ? 

Insurance  is  a  contract  whereby  one  for  a  con- 
sideration undertakes  to  compensate  another  if  he  shall 
suffer  loss.  All  that  is  requisite  to  constitute  such  a 
contract  is  the  payment  of  considerations  by  the  one, 
and  the  promise  of  the  other  to  pay  the  amount  of  loss 
agreed  upon  in  the  contract  to  the  person  entitled  to 
claim  it,  upon  the  happening  of  the  contingency  con- 
templated in  the  contract. 

It  had  its  origin  in  the  necessities  of  commerce, 
it  has  kept  pace  with  its  progress,  expanded  to  meet 
its  rising  wants  and  to  cover  its  ever  widening  fields, 
and  under  the  guidance  of  the  spirit  of  modern  enter- 
prise, tempered  by  a  prudent  forecast,  it  has  from  time 
to  time  with  wonderful  facility  adapted  itself  to  the 
new  interests  of  an  advancing  civilization. 

It  is  applicable  to  every  form  of  possible  loss. 
Wherever  danger  is  apprehended  or  protection 
required,  it  holds  out  its  fostering  hand  and  promises 
indemnity.  This  principle  underlies  the  contract,  and 
it  can  never,  without  violence  to  its  essence  and  spirit, 
be  made  by  the  assured  a  source  of  profit,  its  sole  pur- 
pose being  to  guarantee  against  loss  or  danger. 
"Though  based  upon  self-interest"  said  De  Morgan 
many  years  ago,  "yet  it  is  the  most  enlightened  and 
benevolent  form  which  the  projects  of  self-interest 
ever  took.  It  is  in  fact,  in  a  limited  sense  and  a  prac- 
ticable method,  the  agreement  of  a  community  to  con- 
sider the  goods  of  its  individual  members  as  common. 
It  is  an  agreement  that  those  whose  fortune  it  shall 
be  to  have  more  than  average  success  shall  resign  the 


56  LECTURES  ON  LIFE  INSURANCE 

overplus  in  favor  of  those  who  have  less.  And  it  has 
as  yet  been  applied  only  to  the  reparation  of  the  evils 
arising  from  storm,  fire,  premature  death,  disease  and 
old  age,  yet  there  is  no  placing  a  limit  to  the  extensions 
which  its  application  might  receive  if  the  public  were 
fully  aware  of  its  principles  and  of  the  safety  with 
which  they  may  be  put  in  operation." 

THE  VALUE  OF  A  HUMAN  LIFE 

It  can  now  be  inquired  whether  a  human  life  can 
have  a  definite  worth  which  can  be  measured  with  any 
degree  of  accuracy.  It  would  not  be  difficult  to  enum- 
erate many  lives  which  can  not  be  considered  of  any 
pecuniary  value  because,  for  various  reasons,  they  pro- 
duce nothing.  Such  are  those  of  the  very  old,  the 
imbeciles  and  the  confirmed  invalids.  But  the  life  of 
every  man  who  earns  more  than  suffices  for  his  actual 
personal  expenses  is  of  pecuniary  value  to  some  one 
beside  himself.  This  has  been  recognized  from  early 
times  in  the  institution  of  slavery  which  was  based  on 
the  principle  that  the  ownership  of  the  services  of  a 
human  being  had  a  value  in  accordance  with  the  excess 
of  earnings  obtainable  above  the  necessary  cost  of  sub- 
sistence. When  a  slave  was  purchased  as  an  invest- 
ment, he  was  examined  in  order  that  the  state  of  his 
health  and  his  muscular  development  might  be  known. 
These  qualities  in  connection  with  his  age,  his  skill  in 
any  variety  of  labor,  and  his  disposition,  determined 
the  price  at  which  he  seemed  likely  to  be  a  profitable 
investment.  A  carpenter  or  blacksmith  was  worth  50 
per  cent,  more,  other  things  being  equal,  than  an  ordi- 
nary field  hand,  because  while  the  cost  of  his  support 
was  no  greater,  the  quality  of  his  service  was  much 
more  valuable.  In  any  case,  however,  certain  impor- 
tant elements  were  either  wholly  lacking  or  but  par- 
tially developed.  "A  person  who  can  acquire  no  prop- 
erty can  have  no  other  interest  but  to  eat  as  much  and 
to  labor  as  little  as  possible." 

Family  ties  are  needed  to  develop  the  highest 
value  of  a  human  life.  But  while  this  value  thus  reaches 
its  greatest  capacity,  there  devolves  upon  its  possessor 


LECTURES  ON  LIFE  INSURANCE  57 

the  responsibility  of  supporting  those  who  have  by  his 
own  choice  and  act  the  right  to  depend  upon  him  for 
the  necessities  of  life.  The  family,  then,  has  a  clear 
and  indisputable  interest  in  his  earnings.  This  they 
have  day  by  day,  month  by  month,  and  year  by  year, 
and  this  interest  extends  into  the  future  as  far  as  they 
need  it.  Without  it  they  will  suffer  privation  or  be 
dependent  upon  charity,  in  either  of  which  conditions 
their  natural  protector  has  no  right  to  place  them.  If 
he  dies  possessed  of  property,  this  by  right  goes  to 
them  in  order  that  they  may,  so  far  as  its  income 
may  enable  them,  continue  to  defray  the  cost  of  exist- 
ence. 

But  what  of  this  life  itself  ?  Has  it  a  value  beyond 
what  it  produces  in  a  month  or  a  year  which  can  be 
measured  with  any  degree  of  accuracy?  Supposing 
its  possessor  to  be  of  good  constitution  and  free  from 
hereditary  taint,  it  can  be  shown  that  he  and  others  of 
his  class  will  be  governed,  as  to  the  length  of  their 
lives,  by  a  law  of  mortality  so  certain  that  their  aver- 
age lifetime  may  be  measured  with  as  much  precision 
as  that  which  governs  any  series  of  future  events,  and 
the  present  money  value  of  any  such  life  can  be  valued 
with  an  accuracy  at  least  equal  to  that  which  charac- 
terizes market  transactions  in  other  kinds  of  property. 

DOES  LIFE  INSURANCE  PERFORM  A  SERVICE 
TO  THE  PUBLIC  ? 

It  will  not  be  denied  that  certain  persons  must 
and  should  be  supported  at  the  public  expense,  but 
the  fewer  there  are  of  these  the  better  will  be  the 
morals  as  well  as  the  finances  of  the  community,  and 
life  insurance  is  continually  reducing  this  dependent 
class.  It  is  not  the  man  who  lives  to  old  age,  sup- 
ports and  educates  his  children  and  saves  a  compe- 
tency, who  contributes  to  the  class  who  are  applicants 
for  public  charity.  But  the  one  who  is  taken  away 
while  his  children  are  infants  and  who  has  not  had 
the  time  given  him,  no  matter  how  affectionate  and 
thrifty  he  may  be,  to  provide  for  their  needs,  is  a  lib- 
eral  contributor   to   the   membership   of   the   orphan 


58  LECTURES  ON  LIFE  INSURANCE 

asylum  and  almshouse.  He  may  avoid  this  danger  by 
postponing  marriage  for  such  time  as  will  enable  him 
to  accumulate  a  sufficient  sum  to  insure  the  comfort 
of  a  family,  but  neither  mortality  nor  the  public  wel- 
fare will  be  best  served  by  the  establishment  of  such 
a  principle.  There  is  but  one  way  by  which  he  can 
follow  the  course  which  nature  intended  him  to  take, 
and  that  way  is  open  to  him  through  life  insurance. 
By  the  payment  of  comparatively  small  sums  at  con- 
venient intervals,  he  can  relieve  himself  of  the  respon- 
sibility of  the  distress  which  would  fall  upon  his  de- 
pendents in  case  of  his  premature  death,  and  he  can, 
moreover,  provide  for  his  own  future  in  case  he  should 
survive  the  time  when,  from  physical  weakness,  he 
shall  become  incapacitated  from  earning  his  own  sub- 
sistence. 

IS  LIFE  INSURANCE  OVERDONE  ? 

The  value  of  human  life  lies  at  the  foundation  of 
every  other  property,  and  if  a  fair  computation  could 
be  made  of  it,  it  would  no  doubt  appear  that  its  sum 
total  is  greater  than  the  amount  of  all  other  posses- 
sions. The  man  who  has  a  building  which  is  liable  to 
be  destroyed  by  fire  will  not  sleep  well  unless  it  is 
covered  by  fire  insurance,  because  its  loss  will  affect 
him  personally,  and  he  comprehends  very  clearly  that 
this  catastrophe  is  liable  to  happen  at  any  time.  He 
is  not  so  eager  to  protect  his  family,  because,  whether 
he  knows  and  acknowledges  it  or  not,  the  loss  of  his 
valuable  life  will  not  cause  him  personal  financial  in- 
conveniences, so  far  as  he  knows. 

Aside  from  the  individual  family,  the  state  is 
much  more  interested  in  having  his  family  provided 
for  so  that  they  will  not  become  public  charges,  than 
it  is  in  having  his  building  insured,  for  this  can  be 
replaced  by  himself  by  industry. 

The  census  of  1900  showed  that  there  were  in 
the  United  States  26,100,000  children  under  15  years 
of  age,  about  900,000  persons  over  75  years  of  age, 
and  13,200,000  married  women  between  the  ages  of 
15   and   65.      The   married   men   between   20   and   65 


LECTURES  ON  LIFE  INSURANCE  59 

years  of  age  numbered  more  than  12,000,000.  By  far 
the  greater  part  of  these  40,000,000  children,  married 
women  and  old  people,  depended  for  their  subsistence 
upon  these  married  men.  In  many,  and  perhaps  most 
cases,  nothing  but  the  earnings  of  these  men  stood 
between  the  dependents  and  public  or  private  charity. 

HOW  IS  THIS  PROPERTY  PROTECTED  ? 

The  life  insurance  companies  doing  business  in 
Connecticut  had  outstanding  at  the  close  of  last  year 
about  $9,000,000,000  of  insurance,  and  this  included 
policies  on  lives  now  beyond  an  insurable  age  and  those 
held  for  investment,  so  that  the  actual  amount  car- 
ried by  those  who  need  it  is  much  less. 

The  fire  insurance  companies  doing  business  in 
Connecticut  in  the  same  year  had  outstanding  insur- 
ance amounting  to  some  $26,000,000,000.  These  fig- 
ures may  not  prove  much,  but  they  indicate  I  am  sure 
some  things  that  are  worth  considering. 

WILL  PEOPLE  VOLUNTARILY  SEEK 
LIFE  INSURANCE  ? 

A  man  who  has  saved  some  money  will  find  his 
way  to  the  savings  bank  and  place  it  where  it  will  earn 
something  and  where  he  can  get  it  at  any  time  for  his 
own  use.  If  he  has  a  building  he  will  take  the  trouble 
to  have  it  insured.  Will  he  insure  his  life  of  his  own 
accord,  even  if  he  is  convinced  that  some  life  insur- 
ance company  will  carry  his  risk  at  a  small  expense 
ratio  ? 

In  the  year  1904  there  was  living  in  a  small 
town  in  Alabama  a  young  farmer  named  Robert  Burt, 
25  years  of  age.  He  was  sober,  industrious  and  frugal, 
and  had  some  two  years  before  that  time  married  the 
daughter  of  a  neighbor.  While  he  had  saved  about 
$100,  at  the  time  of  his  marriage,  this  had  been  used 
for  some  articles  of  furniture,  and  in  certain  other 
expenditures  which  happened  to  be  larger  than  the 
expected  cost  of  living,  so  that  at  this  time  neither  he 
nor  his  wife  had  practically  any  property  aside  from 


60  LECTURES  ON  LIFE  INSURANCE 

the  value  of  his  own  life,  which  was  sufficient  to  sup- 
port his  wife  and  himself,  together  with  their  child. 
He  had  every  reason  to  believe  that  his  income  would 
increase  with  experience,  and  felt  no  anxiety  for  the 
future. 

An  agent  of  a  northern  life  insurance  company, 
however,  in  the  course  of  his  travels  visited  Robert 
Burt  and  explained  to  him  the  nature  of  life  insur- 
ance, and  why  as  he  was  situated  it  was  his  duty  to 
secure  some  protection  for  his  wife  and  child.  After 
giving  the  matter  careful  consideration,  he  concluded 
to  take  a  policy  on  his  life  at  that  time  and  hoped  to 
increase  the  amount  in  the  future.  The  agent  prepared 
the  application,  secured  a  physician  who  had  been  ap- 
pointed by  the  company  to  make  its  examinations,  had 
Robert  Burt  examined,  sent  his  application  to  the  head 
office  of  the  company,  and  in  due  time  received  the 
policy,  for  which  he  paid  the  first  premium  of  $21.02. 
Of  this  amount  the  agent  received  a  commission  of 
$10.51,  and  out  of  the  remainder  paid  the  medical 
examiner  for  his  services.  More  than  50  per  cent, 
of  the  premium  went  for  expenses. 

Within  twelve  months  Robert  Burt  was  taken  sick 
and  died,  and  his  family  received  $1,000,  which  was  all 
they  had,  the  farm  having  been  rented.  The  question 
arises  whether  this  insurance  cost  too  much, — whether 
Robert  Burt  should  have  read  the  newspapers  and 
taken  mathematical  advice  as  to  whether  life  insurance 
was  not  more  expensive  than  it  ought  to  be,  and 
whether  he  ought  not  to  have  refused  to  take  a  policy 
unless  it  could  be  shown  to  him  that  the  expense  ratio 
of  the  company  was  less  than  10%  oi  the  premium, 
which  it  probably  would  have  been  had  it  not  been  for 
the  fact  that  the  agent  was  earning  a  living  in  this 
business  and  also  had  a  family  to  support. 

Was  life  insurance  a  good  thing  for  Mrs.  Burt? 
Was  it  worth  what  it  cost  ?  Would  it  have  been  better 
if  Robert  Burt  had  been  left  to  his  own  resources,  and 
would  he  have  been  likely  to  have  communicated  with 
some  life  insurance  company,  had  it  not  been  for  the 
agent?  Was  the  agent  engaged  in  an  honorable  and 
legitimate  occupation  ?    These  are  all  interesting  ques- 


LECTURES  ON  LIFE  INSURANCE  61 

tions  at  this  time  and  deserve  very  careful  consider- 
ation. 

DISTRIBUTION  AND  SAFETY* 

Can  life  insurance  be  widely  distributed  with 
safety  without  agents? 

Let  us  take  another  point  and  assume  that  at 
this  time  there  was  a  life  insurance  company  in  New 
York  of  considerable  size  and  strength,  conducting  its 
business  on  a  low  ratio  of  expense,  but  without  agents ; 
and  let  us  assume  that  Robert  Burt  heard  about  this 
company,  thought  about  life  insurance,  decided  that 
he  ought  to  have  it,  communicated  with  the  company, 
secured  the  necessary  blanks,  hunted  up  a  physician, 
submitted  himself  to  an  examination,  forwarded  the 
papers  to  the  company,  that  they  issued  the  policy  and 
he  paid  the  premium.  He  had  a  neighbor  who  knew 
of  the  large  sum  which  had  been  received  by  the  fam- 
ily compared  with  the  small  amount  of  the  premium. 
Peter  Jones,  while  he  was  a  hard  working  man,  knew 
that  he  had  a  trouble  which  would  cause  his  death 
within  a  short  time,  and  it  occurred  to  him  that  an 
opportunity  was  offered  for  an  exceedingly  favorable 
operation  for  his  family,  and  so  he  communicated 
with  this  company,  secured  the  papers,  filled  out  the 
application,  without  too  much  regard  for  facts,  visited 
a  physician  he  knew  was  careless  and  intemperate,  had 
him  make  an  examination  when  this  doctor  was  under 
the  influence  of  liquor,  forwarded  the  papers  to  the 
company,  and  they  appearing  all  right,  the  policy  was 
issued,  which,  as  was  expected,  became  a  claim  within 
a  short  time. 

Without  an  agency  organization,  without  a  corps 
of  selected  physicians,  any  company  would  be  a  prey 
to  designing  men,  and  its  career  would  inevitably  be 
short. 

Is  an  institution  maintaining  an  organization 
which  not  only  will  gather  members  from  distant 
points,  but  will  also  do  it  in  a  way  which  will  be  safe, 
doing  a  valuable  work  for  the  people  at  large — not 
only   for   those  who   directly   take   advantage  of   its 


62  LECTURES  ON  LIFE  INSURANCE 

services,  but  also  for  others  who  help  maintain  alms- 
houses and  orphan  asylums? 

Is  it  possible  to  compare  the  expenses  of  an  insti- 
tution of  this  character  with  those  of  a  savings  bank? 

Is  it  reasonable  to  claim  that  because  the  expense 
ratio  of  an  old  established  company  is  too  high,  that 
that  of  a  young  and  growing  one,  honestly  and  intelli- 
gently managed,  should  be  less? 

Is  it  best  for  the  public  that  all  life  insurance 
should  be  done  by  the  company  which  can  show  the 
smallest  ratio  of  expense  to  income? 

The  man  who  seeks  the  truth  should  answer  all 
these  questions  before  he  condemns  the  institution  of 
life  insurance. 

OTHER  QUESTIONS 

I  find  that  I  have  asked  a  good  many  questions, 
each  one  of  which  from  my  standpoint  admits  but 
one  answer.  But  at  this  time  other  questions  are  be- 
ing propounded  which  we  should  not  overlook,  and 
which  those  who  are  interested  in  the  welfare  of  hu- 
manity must  answer  if  we  are  to  accomplish  what 
all  right-minded  men  desire,  and  that  is,  justice  and 
the  best  good  of  all. 

Have  some  life  insurance  companies,  professing  to 
offer  the  most  sacred  kind  of  protection  at  the  lowest 
possible  cost,  been  used  by  their  managers  for  per- 
sonal and  improper  purposes?  The  answer  must  be, 
"Yes." 

Have  some  life  insurance  companies  made  state- 
ments for  the  information  of  their  policyholders  and  to 
attract  additional  members,  which  statements  were 
not  in  accordance  with  the  actual  facts?  The  answer 
must  be,  "Yes." 

Have  some  life  insurance  companies  used  the 
funds  of  policyholders  in  ways  which  were  not  only 
not  within  the  spirit  of  the  policy  contracts,  but  also 
were  demoralizing  to  the  public?  The  answer  must 
be,  "Yes." 

Have  some  life  insurance  companies  incurred 
expenses  which  wrere  not  for  the  benefit  of  their 
policyholders  ?    The  answer  must  be,  "Yes." 


LECTURES  ON  LIFE  INSURANCE  .         63 

RECOMMENDATIONS 

Have  the  disclosures  which  have  been  made 
within  the  past  few  months  carried  the  idea  to  many 
reasonable  and  thoughtful  men  that  the  vices  which 
have  appeared  are  the  rule  in  the  general  practice  of 
life  insurance  rather  than  the  exception?  I  think 
the  answer  will  be  "Yes."  Is  this  just?  The  answer 
must  be -"No";  for  there  are  many  life  insurance  com- 
panies whose  practices  have  been  honest  and  fair, 
whose  business  has  been  conducted  for  the  benefit 
of  policyholders,  and  whose  general  record  will  com- 
pare favorably  with  that  of  any  other  class  of  corpora- 
tions. The  public  will  scarcely  be  satisfied,  however, 
unless  these  matters  shall  receive  the  attention  of  the 
law  makers,  and  attempts  shall  be  made  to  cure  evils 
by  legislation  and  it  is,  therefore,  clear  that  it  will 
be  for  the  best  interests  of  life  insurance  that  some 
laws  shall  be  passed.  I  have  been  asked  to  make  sug- 
gestions in  this  line,  and  I  trust  that  it  may  not  be 
without  interest  to  take  up  some  of  the  points  which 
have  been  considered  by  the  public  as  a  result  of  the 
recent  investigations. 

I. — Publicity. 

2. — Limit  of  Size. 

3. — Deferred  Dividends. 

4. — Investments. 

5. — Contributions. 

6. — Responsibility  of  Directors. 

7. — Expense. 

1. — Publicity.  The  present  form  for  returns  to 
the  various  insurance  departments  is  amply  sufficient 
for  showing  the  financial  condition  of  a  life  insurance 
company,  and  if  the  answers  to  all  the  questions  are 
full  and  accurate,  and  the  required  oath  is  carefully 
considered  by  those  who  sign  it,  the  operations  of  any 
company  will  be  fully  disclosed.  I  suggest  in  addition 
to  the  present  requirements,  that  companies  be  pro- 
hibited from  including  in  any  profit  and  loss  or  sim- 
ilar account  any  disbursements  for  expenses  of  any 
kind,  and  that  such  account  be  allowed  to  include  only 
credits  and  charges  on  account  of  assets,  and  that  a 


64  LECTURES  ON  LIFE  INSURANCE 

detailed  report  of  any  such  account  be  furnished  the 
insurance  commissioners. 

2.  Limit  of  Size.  I  suggest  that  looking  into  the 
distant  future,  it  might  be  wise  to  establish  a  limit  in 
the  matter  of  outstanding  insurance,  beyond  which  a 
company  should  not  go,  excepting  for  reasons  which 
might  apply  to  some  particular  institution.  It  is  con- 
ceivable that  a  company  having  $500,000,000  of  out- 
standing insurance  might  accumulate  $250,000,000  of 
assets.  Such  a  company  could  be  kept  in  a  perfectly 
healthy  condition  and  could  give  good  service  to  its 
policyholders,  if  it  were  permitted  to  maintain  its  out- 
standing insurances  by  issuing  new  ones  only  for  suf- 
ficient amounts  to  counterbalance  the  withdrawals ; 
and  I  suggest  that  if  this  limit  were  fixed,  and  no  com- 
pany having  a  greater  amount  outstanding  should  be 
permitted  to  increase  its  volume,-  no  damage  would  be 
done  to  present  policyholders,  and  the  best  interests 
of  the  public  would  be  served.  It  might  be  well  in 
this  connection  to  provide  that  the  insurance  commis- 
sioner should  have  power,  in  view  of  conditions  which 
might  be  made  known  to  him,  to  issue  a  written  order 
permitting  an  extension  of  this  limit  on  such  condi- 
tions as  to  locality  and  amounts  as  might  seem  to  him 
on  the  whole  desirable. 

3.  Deferred  Dividends.  I  suggest  that  a  life 
insurance  company,  if  it  be  permitted  to  issue  deferred 
dividend  policies,  should  be  required  to  annually  de- 
clare and  credit  to  each  policy  on  any  such  plan  a  cer- 
tain dividend,  but  allowed  to  couple  with  it  a  provision 
that  it,  together  with  any  further  accumulations, 
should  be  payable  only  in  event  of  the  policy  being 
continued  in  force  for  a  certain  number  of  years.  This 
dividend  should  be  in  no  case  less  than  it  would  have 
been  if  the  policy  had  been  on  the  annual  dividend  dis- 
tribution plan,  if  the  company  issues  both  annual  and 
deferred  dividend  policies,  and  such  dividends  should 
be  included  in  the  liabilities  and  not  in  any  case  appear 
in  any  surplus.  Any  policyholder  should  be  permitted 
to  know  the  amount  of  his  accumulations  at  any  time, 
and  in  any  event  should  be  informed  at  periods  not 
longer  than  five  years. 


LECTURES  ON  LIFE  INSURANCE  65 

4.  Investments.  Statutory  provisions  as  to 
investments,  while  prohibiting  syndicate  and  financial 
underwriting  transactions,  should  not  be  as  drastic  as 
the  provisions  covering  investments  of  savings  banks. 
These  latter  institutions  are  mainly  local  in  character, 
and  dividends  to  depositors  are  based  only  upon  the 
net  returns  of  interest  which  they  receive  upon  their 
investments.  Life  insurance  companies  do  an  extended 
business,  and  the  laws  as  well  as  the  principles  upon 
which  they  conduct  their  affairs  require  that  to  main- 
tain solvency  these  trust  funds  shall  be  improved  at 
interest  of  at  least  a  given  rate  per  cent.  Many  of 
these  institutions  secure  for  their  members  a  much 
higher  rate  than  savings  banks,  and  this  without  in- 
curring any  great  risk.  The  laws  of  Connecticut 
touching  investments  which  may  be  made  by  life  insur- 
ance companies  are  suggestive,  and  I  commend  them 
to  your  consideration. 

5.  Contributions.  I  suggest  that  laws  be  pro- 
posed prohibiting  contributions  for  political,  benevo- 
lent or  charitable  purposes. 

6.  Responsibility  of  Directors.  It  seems  proper 
that  the  law  should  provide  that  all  business  transacted 
at  a  directors'  meeting  should  be  brought  to  the  atten- 
tion of  the  directors  present  in  such  a  way  that  their 
responsibility  shall  be  determined  solely  by  the  record 
of  their  votes.  To  that  end  I  would  suggest  individ- 
ual record  books  for  each  director,  comprising  a 
printed  record  of  business  to  be  reported  at  each 
meeting,  and  similar  to  those  in  use  for  many  years 
by  the  company  with  which  I  am  connected.  These 
individual  record  books  are  for  use  of  the  directors 
only  at  their  meetings,  and  are  never  taken  away  by 
them.  This  record  of  course  should  be  at  all  times 
open  to  the  inspection  of  the  insurance  commissioner, 
that  he  may  be  able  to  decide  whether  the  laws  are 
being  complied  with  so  far  as  they  apply  to  the  knowl- 
edge and  responsibility  of  the  directors. 

7.  Expense.  A  matter  about  which  much  has 
been  said  is  that  of  expense.  The  lives  of  some  mil- 
lions of  Americans  are  insured  in  the  life  companies  of 
the  United   States,   which   corporations  hold   for   the 


66  LECTURES  ON  LIFE  INSURANCE 

final  payment  of  these  policies  a  very  large  amount 
of  property.  So  many  persons  have  come  to  rely 
upon  these  companies  for  protection  to  those  to  whom 
they  are  under  obligations,  and  the  probable  future 
growth  of  this  business  is  so  great,  that  the  best  inter- 
ests of  the  public  demand  that  there  should  be  many 
separate  institutions  engaged  in  carrying  these  risks. 
Laws  limiting  expense  might  be  passed  to  the  advan- 
tage of  those  companies  which  have  attained  consid- 
erable size,  but  which  if  applied  to  companies  recently 
organized  would  prevent  further  development,  and 
would  make  it  impossible  for  any  other  similar  cor- 
porations to  be  undertaken.  Proper  laws  providing 
for  financial  strength  and  accurate  statements,  together 
with  the  force  of  competition,  if  there  were  a  yearly 
disclosure  of  dividends  earned  on  individual  policies, 
would  probably  regulate  this  question  as  fully  as  it 
can  be  brought  within  reasonable  statutory  require- 
ments. 

THE  COST 

In  the  preparation  of  these  suggestions  concerning 
this  most  interesting  and  important  subject,  I  have 
endeavored  to  view  it  from  the  standpoint  of  one  who 
considers,  not  the  individual  company,  nor  indeed 
any  class  of  companies,  but  rather  the  business  as  a 
whole,  its  purposes  and  possibilities;  what  it  does  for 
the  individual  and  what  it  does  and  can  do  for  the 
state.  I  believe  that  life  insurance  is  a  good  thing 
and  I  believe  that  the  more  widely  it  is  spread  among 
the  people,  the  better  will  be  not  only  those  who  are 
directly  interested  in  it,  but  the  entire  nation.  I  know 
that  the  protection  that  it  affords  cannot  be  widely  dis- 
tributed except  through  the  efforts  of  agents  and  I 
know  that  it  cannot  be  safely  done  over  any  consider- 
able territory  without  local  representatives  and  phy- 
sicians, and  without  constant  inspection  from  the 
home  office.  I  know  that  it  costs  a  great  deal  oi 
money  to  construct  and  start  the  necessary  machinery, 
and  while  this  operation  is  going  on  the  expense 
account  will  be  large,  but  I  know  that  when  once  it 
is  thoroughly  built  of  good  material,  and  running 
smoothly  it  will  be  worth  to  policyholders  and  the  pub- 
lic all  that  it  has  cost. 


SERVICE  AND  SCOPE  OF  LIFE  INSURANCE 


(Delivered  before  Philadelphia  Ass'n  of  Life  Underwriters) 


T  BELIEVE  in  the  power  for  good  which  lies  in  the 
organizations  of  life  underwriters.  Whether  circum- 
stances have  placed  us  in  the  home  offices  or  in  the 
field,  we  are  all  engaged  in  the  same  work,  the 
strengthening,  purifying  and  uplifting  of  the  best  busi- 
ness in  the  world.  The  man  who  causes  another  to 
take  insurance  on  his  life  performs  a  service  to  the 
individual  and  to  the  state,  for  he  increases  the  hap- 
piness and  prosperity  of  the  one,  and  decreases  the 
expenses  and  dangers  of  the  other. 

It  is  in  the  line  of  duty  as  well  as  for  our  own 
interest  to  seek  for  the  causes  which  lead  to  practices 
which  tend  to  degrade  our  profession  in  the  eyes  of 
the  public,  and  to  injure  the  institution  which  we  are 
bound  to  protect  and  to  elevate.  Our  business  suffers 
from  rebating,  which  not  only  deprives  the  laborer  in 
the  field  of  life  insurance  of  his  legitimate  and  well- 
earned  reward,  but  also  casts  discredit  upon  this  most 
beneficent  of  all  interests,  by  seeming  to  admit  that 
the  premiums  charged  are  more  than  necessary.  We 
hear  of  the  evils  of  twisting  and  competition  for  the 
individual  case,  which  lead  to  unworthy  arguments 
and  misleading  comparisons  between  different  com- 
panies. 

And  what  lies  at  the  root  of  these  evils?  If 
there  was  but  one  company  doing  a  life  insurance 
business,  there  would  be  no  rebating,  nor  twisting,  nor 
defamatory  literature,  nor  excessive  estimates  of  fu- 
ture dividends,  for  the  simple  facts  would  appeal 
to  all  persons,  and  the  real  merits  of  the  institution 
would  be  a  sufficient  argument  in  its  favor. 

If  every  agent  believed  that  there  were  five  or  ten 
uninsured  persons  to  every  one  insured,  it  would  seem 
natural  that  he  should  spend  his  time  and  talents  in 
educating  the  public  to  understand  what  it  all  meant, 


68  LECTURES  ON  LIFE  INSURANCE 

rather  than  to  strive  by  unworthy  methods  to  deprive 
his  fellow  laborer  of  the  fruits  of  his  toil,  and  thus 
degrade  his  business  to  his  own  final  loss. 

LIFE  INSURANCE  OVERDONE  ? 

And  is  life  insurance  overdone?  Is  there  no 
longer  fresh  material  to  work  on,  except  as  it  is  sup- 
plied by  new  candidates  who  are  reaching  the  age  and 
condition  for  insuring  their  lives? 

Life  insurance  exists  for  the  purpose  of  repairing 
the  loss  occasioned  by  the  death  of  the  individual  who 
can  produce  more  than  the  cost  of  subsistence.  We 
can  measure  the  value  of  a  single  life  with  as  much 
accuracy  as  we  can  the  worth  of  other  classes  of  prop- 
erty. The  total  present  value  of  the  future  earnings 
of  a  single  individual  can  be  estimated,  but  the  aggre- 
gate present  worth  of  the  future  efforts  of  the  entire 
working  community  can  scarcely  be  even  conjectured. 
If  that  could  be  known,  it  would  appear  that  the  chief 
part  of  the  values  of  the  world  consists  not  of  lands 
and  buildings,  nor  of  railroads  and  ships,  nor  stocks 
of  goods,  nor  minerals,  but  of  the  earning  power  of 
the  human  family. 

Let  us  glance  at  some  of  the  conditions  which 
exist  in  the  state  of  Connecticut.  The  census  of  1900 
shows  us  that  there  were  in  that  state  in  that  year 
385,610  persons  engaged  in  all  occupations ;  of  this 
number  186,675,  or  somewhat  less  than  one^half,  were 
engaged  in  manufacturing,  and  the  amount  paid  by 
these  establishments  in  wages  and  salaries  during  that 
year  was  $95,053,775.  Of  this  amount  it  seems  rea- 
sonable to  assume  that  two-thirds,  or  say  $60,000,000, 
was  expended  in  the  support  of  others  than  those  earn- 
ing this  income.  If  it  is  assumed  that  the  average  age 
of  these  producers  is  30  years,  and  the  present  value 
of  an  annuity  at  that  age  is  $17,  and  that  on  the 
whole  the  mortality  among  these  persons  will  follow 
the  table  rate,  it  appears  that  this  income  represents  a 
present  value  of  future  earnimgjs  of  more  than  a 
thousand  million  dollars,  any  portion  of  which  capital 
is  liable  to  be  cut  off  in  any  hour  of  any  day.    But  these 


LECTURES  ON  LIFE  INSURANCE  69 

figures  apply  only  to  those  engaged  in  one  branch  of 
labor,  and  this  probably  on  the  whole  less  remuner- 
ative than  the  sum  total  of  other  occupations. 

The  grand  list  of  Connecticut  in  the  year  1900 
amounted  to  $694,000,000.  This  represents  the 
amount  of  property  subject  to  direct  taxation  in  the 
state,  by  far  the  greater  part  of  it  consisting  of  real 
estate  and  buildings.  Theoretically,  these  properties 
are  placed  in  this  list  at  somewhat  less  than  their 
actual  value,  but  it  is  doubtful  if  taking  the  whole 
state  together,  the  value  of  real  estate  and  buildings 
is  materially  greater  than  that  placed  upon  them  in 
the  grand  list.  From  estimates  which  have  here  been 
made,  there  can  be  no  doubt  whatever  that  the  present 
value  of  the  future  earnings  of  those  engaged  in  vari- 
ous occupations  in  that  state  is  many  times  the  amount 
of  the  grand  list. 

PROTECTION,  RELATIVELY 

Let  us  now  see  what  protection  was  provided  in 
that  year  by  the  citizens  of  Connecticut  against  the 
loss  of  this  capital.  The  report  of  the  insurance  com- 
missioner for  the  year  1900  shows  that  there  were  at 
the  close  of  that  year  life  insurance  policies  outstand- 
ing on  the  lives  of  citizens  of  the  state,  amounting  to 
$149,970,752  of  insurance.  Some  of  these  have  been 
in  force  for  many  years,  and  it  is  certain  that  the  aver- 
age age  of  these  policyholders  is  much  higher  than 
that  of  the  general  population.  Assuming  it  to  be  50, 
it  appears  that  this  amount  of  insurance  represents  an 
income  which  it  is  intended  to  protect  of  about 
$12,000,000,  or  about  one-eighth  of  the  sum  paid  in 
that  year  to  those  engaged  in  manufacturing  alone. 
It  is  evident  that  this  protection  is  far  less  than  the 
amount  at  risk,  and  that  the  community  is  therefore 
constantly  sustaining  losses  by  death  which  are 
repaired  only  to  a  comparatively  small  degree.  Mak- 
ing allowance  for  the  fact  that  many  of  the  persons 
who  are  engaged  in  remunerative  labor  of  various 
kinds  are  uninsurable,  and  that  there  are  some  who  by 
reason  of  their  financial  condition  do  not  need  insur- 


70  LECTURES  ON  LIFE  INSURANCE 

ance,  we  cannot  escape  the  conclusion  that  in  Connec- 
ticut alone  there  is  not  one-tenth  the  amount  of  insur- 
ance carried  by  its  citizens  Which  there  should  be,  and 
this  in  a  state  which  has  had  its  own  life  insurance 
companies  for  more  than  fifty  years,  and  in  which 
many  of  the  best  and  most  active  companies  in  the 
country  are  represented. 

If  this  is  the  condition  of  things  in  the  old  and 
respectable  and  intelligent  state  of  Connecticut,  it  is 
not  unreasonable  to  believe  that  the  field  in  other  sec- 
tions is  not  more  thoroughly  covered. 

I  will  not  claim  that  we  are  engaged  in  this  busi- 
ness solely  for  philanthropic  reasons,  but  every  one 
of  us  must  feel  a  satisfaction,  that  while  we  are  earn- 
ing our  living,  we  are  at  the  same  time  educating  and 
benefiting  our  fellowmen. 

The  life  insurance  agent  is  supposed  to  prosecute 
his  business  thoroughly,  but  he  will  not  accomplish  his 
full  mission  until  the  education  of  the  public  has  pro- 
ceeded to  a  point  where  the  real  purpose  and  the 
actual  benefits  of  life  insurance  are  far  better  under- 
stood than  they  are  at  this  time. 

The  physician  and  the  clergyman  employ  their 
time  and  talents  in  improving  the  physical  and  moral 
condition  of  the  people,  and  in  lengthening  and  render- 
ing more  efficient  their  services ;  they  thus  add  to  the 
value  of  the  state.  But  they  cannot  repair  the  loss  by 
death,  which  is  inevitable.  Life  insurance  is  the  only 
agency  which  can  make  good  or  modify  this  loss  of 
the  individual  and  of  the  state,  and  we  shall  not  only 
benefit  the  public,  but  ourselves  as  well,  if  we  devote 
our  time  to  explaining  what  life  insurance  has  done 
and  what  it  can  do,  and  to  extend  its  protection  over 
those  who  need  it  the  most  and  who  have  it  the  least. 

We  in  the  home  offices  can  do  much  to  elevate 
our  common  calling,  but  in  many  directions  we  are 
powerless  without  your  co-operation.  Together  we 
can  accomplish  all  things  needful. 


INTEREST  OF  STATE 


Life  Insurance  Means  Less  Expense  for  Alms- 
houses and  Orphan  Asylums 


(Delivered  before  Legislative  Committee  at  Albany,  N.  Y.) 


A  T  the  close  of  the  year  1904  there  were  in  force 
**  in  New  York  state  in  what  may  be  called  the  reg- 
ular life  insurance  companies,  706,000  policies  repre- 
senting obligations  due  at  various  times  in  the  future 
amounting  to  $1,490,000,000.  These  companies  paid 
in  the  state  in  that  year  claims  amounting  to  about 
$21,000,000.  Of  this  there  were  outstanding  in  com- 
panies chartered  by  other  states,  but  doing  business 
in  New  York,  248,000  policies,  representing  insur- 
ance to  the  amount  of  $501,000,000,  an  average  of 
about  $2,000  for  each  policy.  These  companies  in  that 
year  paid  in  the  state  in  claims  about  $6,400,000.  This 
business  constituted  in  a  general  way  about  one-tenth 
of  the  total  operations  of  these  foreign  companies. 

Life  insurance  corporations  located  outside  of 
New  York  state  in  the  five  years  from  1900  to  1904 
inclusive  paid  in  claims  alone  in  New  York  over  $29,- 
000,000.  In  the  year  1904  these  companies  placed  in 
New  York  state  50,000  policies  for  $85,000,000  of' 
insurance,  an  average  of  about  $1,700  for  each  policy. 
Practically  all  of  these  policy  contracts  were  issued 
upon  applications  secured  by  agents  operating  in  that 
state. 

It  will  not  be  denied  that  the  people  of  New  York 
have  the  right  and  the  power  not  only  to  regulate, 
build  up  or  destroy  their  own  corporations,  but  they 
also  have  the  right  to  prescribe  upon  what  conditions 
corporations  of  other  states  shall  be  permitted  to  do 
business  with  them. 

The  bill  which  is  before  you  provides,  in  some  of 
its  features,  not  only  how  these  corporations  shall  do 


72  LECTURES  ON  LIFE  INSURANCE 

business  with  the  people  of  New  York  state,  but  also 
in  many  ways  how  they  shall  conduct  their  entire 
affairs,  and  it  is,  therefore,  a  serious  question  whether 
such  a  corporation  can  properly  comply  with  the  con- 
ditions which  may  be  prescribed  for  the  privilege  of 
transacting  business  in  the  state. 

These  outside  companies  have  many  policyholders 
in  New  York  state  whose  interests  can  best  be  cared 
for  through  agents.  These  agents  have  devoted  them- 
selves to  the  legitimate  work  of  spreading  abroad 
among  the  people  the  protection  of  life  insurance,  and 
their  withdrawal  from  the  state  would  inflict  a  damage 
upon  them  which  it  is  the  duty  of  the  managers  of 
these  companies  to  avert  if  they  can  do  so  by  fair 
arguments. 

NECESSITY  OF  AGENTS 

Life  insurance  has  never  been  done  to  any  con- 
siderable extent  except  through  the  instrumentality  of 
agents,  and  it  is  perfectly  safe  to  say  that  it  never  will 
be.  This  is  shown  conclusively  by  the  experience  of 
many  companies,  especially  those  in  England.  The 
Equitable  Life  Assurance  Society  of  London — one  of 
the  strongest  of  all  life  insurance  companies,  having 
been  in  business  continuously  for  more  than  150  years, 
located  in  the  heart  of  the  greatest  city  in  the  world, 
within  easy  reach  of  many  millions  of  people,  but  pro- 
hibited by  its  by-laws  from  employing  agents — has 
issued  in  the  past  thirty  years  an  average  of  less  than 
300  policies  a  year. 

A  life  insurance  company  is  not  a  savings  bank. 
It  exists  not  for  the  purpose  of  receiving  money,  im- 
proving it  at  interest  and  returning  it  to  its  depositors, 
but  to  repair  the  loss  occasioned  by  the  termination  of 
a  life  valuable  to  those  dependent  upon  it  and  to  the 
state.  The  premium  required  to  meet  this  loss  must 
be  sufficient  not  only  to  make  good  the  loss  itself,  but 
also  to  meet  the  necessary  cost  of  bringing  this  protec- 
tion to  the  insured,  to  pay  reasonable  expenses  of  con- 
ducting a  large,  complicated  and  delicate  business, 
requiring  skill,  integrity  and  experience,  and  the  taxes 


LECTURES  ON  LIFE  INSURANCE  73 

levied  upon  it  by  the  various  states  in  which  the  opei  - 
ations  are  conducted.  A  mutual  life  insurance  com- 
pany exists  for  the  purpose  of  furnishing  to  its  mem- 
bers sound  insurance  in  such  forms  as  best  suit  their 
various  needs,  at  as  low  a  cost  as  possible.  Whether 
this  can  be  accomplished  in  each  individual  case  by 
increasing  the  number  of  policyholders  or  going  into 
liquidation  must  be  left  to  the  judgment  of  those  whose 
knowledge  of  the  affairs  of  the  institution  is  sufficient 
to  enable  them  to  intelligently  decide  so  important  a 
subject.  If  an  increase  shall  be  deemed  to  be  for  the 
good  of  all,  the  terms  and  conditions  upon  which 
this  shall  be  made  and  the  localities  where  new  mem- 
bers shall  be  admitted  must  be  decided  by  the  care- 
ful consideration  of  all  surrounding  circumstances, 
and  these  cannot  be  known  except  by  those  who  have 
an  intimate  knowledge  of  every  detail  of  the  situation. 
A  mutual  life  insurance  company  must  charge 
equal  rates  and  equity  must  prevail  in  the  apportion- 
ment of  its  surplus  earnings.  But  this  is  not  all.  If 
it  has  but  one  scale  of  premiums,  it  must  be  sure  that 
its  members  must,  in  the  quality  of  the  risks  assumed, 
be  on  an  equality.  It  must  also  issue  to  its  members 
policy  contracts  alike  in  terms  and  conditions.  It 
•would  be  as  false  to  principles  of  mutuality  to  insure 
good  and  bad  lives  on  the  same  terms,  as  it  would  be 
to  discriminate  between  individual  members  in  allotting 
surplus. 

PROTECTION  FOR  BOTH  PARTIES  TO  CONTRACT 

In  what  way  can  this  balance  best  be  secured  and 
preserved?  Plainly,  in  a  business  obtained  chiefly  at 
a  distance  from  the  home  office,  the  greatest  care 
must  be  exercised  that  the  personal  history  and  physi- 
cal condition  of  the  applicant  shall  be  known.  A  com- 
petent medical  examiner  and  a  faithful  and  honest 
agent  are  essential.  No  contract  should  be  entered 
into  without  a  full  knowledge  by  both  parties  of  all 
material  facts.  The  company  must  know  the  condition 
of  the  applicant.  The  applicant  must  know  the  condi- 
tion of  the  company.  The  agent  must  be  the  medium 
through  which  this  information  is  exchanged. 


74  LECTURES  ON  LIFE  INSURANCE 

In  what  way  can  both  parties  be  most  effectually 
protected  ? 

If  the  compensation  which  the  agent  receives  for 
his  labor  is  dependent  not  only  upon  the  payment  of 
the  first  premium,  but  also  upon  the  continuance  of 
the  policy,  then  it  will  be  directly  for  his  interest  that 
the  policyholder  shall  live  to  pay,  shall  be  satisfied 
with  his  contract  and  that  the  company  shall  meet 
with  success,  in  order  that  it  may  retain  the  confidence 
of  its  members  and  the  public.  As  renewal  premiums 
are  paid  the  agent  can  and  does  perform  many  ser- 
vices for  both  parties  for  which  he  is  entitled  to  fair 
remuneration. 

The  system  of  renewal  commissions  extending 
over  a  considerable  period  is  not  in  the  nature  of  a 
bonus,  but  is  of  distinct  value,  and  the  instances  are 
rare  where  the  agent,  under  this  form  of  compensation, 
receives  more  than  his  services  are  reasonably  worth, 
or  more  than  the  company  or  the  policyholders  can  af- 
ford to  pay.  Life  insurance  agents  are  engaged  in 
an  honorable  work  upon  which  they  rely  for  support 
of  themselves  and  their  families.  Their  occupation 
is  one  of  as  much  dignity,  importance  and  value  as 
that  of  the  minister,  the  lawyer  or  the  doctor,  and  they 
undoubtedly  receive  less  for  the  amount  of  intelligence, 
ability  and  labor  required  for  their  work  than  almost 
any  other  class  of  laborers. 

WHO  MOST  NEED  INSURANCE 

It  is  not  those  who  can  afford  to  carry  large 
policies  who  need  life  insurance  most.  It  is  those  who 
can  only  afford  to  pay  comparatively  small  premiums, 
and  any  law  which  would  tend  to  restrict  the  business 
of  life  insurance  companies  to  the  wealthy,  and  even 
the  well-to-do  class,  would  certainly  deprive  the  far 
more  numerous  class  of  this  protection. 

That  portion  of  the  bill  which  is  before  you  which 
seeks  to  regulate  the  amount  to  be  paid  for  new  busi- 
ness and  for  collecting  renewals,  after  making  mod- 
erate allowance  for  other  necessary  disbursements, 
would  leave  a  compensation  to  be  divided  between  the 
solicitor  and  the  general  agent  under  which  life  insur- 
ance cannot  be  brought  to  those  who  need  it  most. 


LECTURES  ON  LIFE  INSURANCE  75 

This  bill  would  destroy  agency  organizations  which 
have  cost  much  money  to  establish. 

Many  of  these  companies  have  been  conducting 
their  business  for  more  than  fifty  years,  honestly,  faith- 
fully, economically  and  unselfishly  serving  the  public. 
They  have  adjusted  their  premium  rates  and  their 
entire  policy  contracts  upon  equitable  and  safe  prin- 
ciples, and  that  section  of  this  bill  which  seeks  to  dic- 
tate the  premiums  which  shall  be  charged  would  be  an 
interference  with  those  principles  which  have  been 
established  after  many  years  of  experience  and  most 
careful  consideration. 

COMPETITION 

All  life  insurance  companies  doing  business  in 
any  state  should  be  required  to  maintain  a  condition 
of  perfect  solvency;  should  be  regulated  to  a  reason- 
able extent  in  the  investment  of  these  sacred  trust 
funds ;  should  be  required  to  give  the  public  full 
information  of  their  operations.  Competition  and 
public  opinion  will  be  far  more  powerful  to  keep  these 
companies  economical  and  honest  than  statute  laws. 

No  matter  approaching  this  in  importance  in  its 
far-reaching  results  has  ever  before  been  brought  to 
the  legislature  of  this  or  any  other  state  for  decision. 
No  one  at  all  familiar  with  the  history  of  life  insur- 
ance can  doubt  that  the  requirements  of  this  bill,  if 
enacted  into  laws,  would  place  all  the  companies 
engaged  in  this  business  in  a  condition  of  practical 
liquidation. 

The  officers  of  these  companies  are  the  cus- 
todians of  the  most  sacred  trust  known  to  the  business 
world.  They  acknowledge  their  responsibility  to  their 
policyholders,  but  they  demand  that  fair  treatment 
which  legislators  are  bound  to  accord  to  those  who 
are  earnestly  striving  to  fairly  administrate  the  great 
interests  which  have  been  placed  in  their  hands.  They 
welcome  proper  safeguards,  but  they  object  to  inter- 
ference in  the  details  of  their  affairs  which  can  be 
known  and  adjusted  only  by  those  who  have  studied 
them  long  and  earnestly. 


76  LECTURES  ON  LIFE  INSURANCE 

CURTAILING  PUBLIC  EXPENSES 

A  bill  which  openly  has  for  its  object  the  prohibi- 
tion of  the  transaction  of  the  business  of  life  or  any- 
other  form  of  insurance  can  be  met  and  argued 
frankly,  but  one  which  means  the  same  thing,  but 
which  is  covered  up  with  technicalities  not  easily 
understood  either  by  its  framers  or  by  the  public  may 
lead  to  consequences  not  intended  even  by  those  who 
advocate  it. 

The  interest  of  the  state  is  deeply  concerned  in 
this  matter.  Life  insurance  is  conceded,  by  those  who 
have  given  social  questions  the  most  study,  to  be  of 
all  institutions  the  most  powerful  in  curtailing  the  pub- 
lic expenses  connected  with  the  suppression  and  pun- 
ishment of  crime  and  the  caring  for  those  who  cannot 
care  for  themselves.  If  any  laws  should  be  enacted 
which  would  in  the  end  do  away  with  the  distribution 
of  the  millions  of  dollars  which  are  annually  paid  out 
to  the  beneficiaries  under  life  insurance  policies,  it 
would  inevitably  result  in  very  greatly  increasing  the 
appropriations  necessary  to  be  made  from  the  public 
treasury  for  the  maintenance  of  almshouses  and  orphan 
asylums. 


IS  LIFE  INSUKANCE  WORTH 
WHAT  IT  COSTS? 


(Delivered  before  the  Boston  Life  Underwriters'  Ass'n) 


IFE  INSURANCE  came  into  existence  to  meet 
a  definite  need  arising  out  of  the  conditions 
of  civilized  life. 

Banks  of  deposit  became  necessary  when  com- 
mercial transactions  reached  the  point  where  it  was 
practically  impossible  to  exchange  commodities,  and 
thus  realize  upon  the  labors  of  different  classes  of 
people.  The  savings  bank  system  grew  out  of  the 
desire  of  thrifty  persons  to  lay  aside  small  sums  which 
could  not  be  invested  separately,  but  the  aggregate  of 
which  could  be  used  to  advantage. 

Marine  and  fire  insurances  were  first  thought  of 
because  individual  losses  proved  ruinous,  whereas  if 
they  were  distributed  among  a  considerable  number, 
each  one  could  bear  the  burden. 

The  purposes  of  life  insurance  can  scarcely  be 
expressed  better  than  in  the  petition  which  was  pre- 
sented to  the  Secretary  of  State's  office  in  1757  in  the 
application  for  a  charter  for  a  new  life  insurance  com- 
pany in  Great  Britain,  as  follows : 

"That  great  numbers  of  His  Majesty's  subjects, 
whose  subsistence  principally  depends  on  the  salaries, 
stipends  and  other  incomes  payable  to  them  during 
their  natural  lives,  or  on  the  profits  arising  from  their 
several  trades,  occupation,  labor  and  industry,  are  very 
desirous  of  entering  into  a  society  for  insuring  the 
lives  of  each  other,  in  order  to  extend  after  their 
decease  the  benefit  of  their  present  incomes  to  their 
families,  and  relations,  who  may  otherwise  be  reduced 
to  extreme  poverty  and  distress  by  the  premature 
death  of  their  several  husbands,  fathers  and  friends, 
which  humane  intention  the  petitioners  humbly  appre- 
hend cannot  be  effectually  carried  into  execution  with- 
out his  majesty's  royal  authority  to  incorporate  them 
for  that  purpose." 


78  LECTURES  ON  LIFE  INSURANCE 

The  sentiment  expressed  in  this  petition  covers 
the  whole  question,  and  gives  the  reason  for  the  exist- 
ence of  legitimate  life  insurance. 

The  savings  bank  has  its  uses  for  those  who  can- 
not for  any  reason  secure  life  insurance,  and  often- 
times in  connection  with  it,  but  the  worth  of  life 
insurance  extends  much  farther  and  has  to  do  with 
the  protection  of  that  property  without  which  there 
can  be  no  other  value,  and  the  loss  of  which  cannot  be 
covered  in  any  other  way,  and  that  is,  ithe  value  of 
a  human  life. 

A  NECESSITY 

That  life  insurance  is  a  legitimate  and  even  neces- 
sary part  of  the  family  and  business  life  of  the  pres- 
ent day  is  too  generally  conceded  to  need  argument. 
It  has  existed  in  one  form  and  another  for  two  hun- 
dred years.  The  maintenance  and  education  of  many 
families  rest  upon  its  stability.  The  credit  of  many 
persons  whose  business  affairs  require  that  they  shall 
borrow  money  depends  upon  the  protection  which 
creditors  are  afforded  by  life  insurance.  In  a  broader 
way,  it  curtails  the  expense  to  the  public  treasury  of 
almshouses  and  police,  of  criminal  courts  and  prisons, 
and  of  the  various  other  necessary  branches  of  the 
public  service  which  have  to  do  with  the  prevention 
and  punishment  of  crime,  and  the  relief  of  the  suffer- 
ing and  unfortunate. 

Some  years  ago  a  census  was  taken  of  the  paupers 
in  the  Philadelphia  almshouse,  with  the  result  that 
of  the  number  observed — 1,110 — only  three  were 
found  who  had  been  beneficiaries  of  life  insurance, 
and  those  to  the  extent  of  $6,000,  but  through  profli- 
gacy or  improvidence  they  were  reduced  to  a  state 
of  pauperism.  In  a  census  of  the  Montgomery  County, 
Pa.,  almshouse,  133  were  examined,  and  it  was 
found  that  none  of  these  people  or  ithear  families  ever 
had  been  the  beneficiaries  of  life  insurance. 

IN  BUSINESS  LIFE 

In  business  life — the  investment  of  the  accumu- 
lations of  small  payments  held  and  improved  at  inter- 


LECTURES  ON  LIFE  INSURANCE  79 

est  for  the  final  payment  of  claims  has  enabled  the 
owners  of  real  estate  in  cities  to  improve  itheir  prop- 
erties by  building  dwellings  and  business  blocks,  and 
to  increase  and  extend  every  line  of  business.  For 
many  years  some  of  the  life  insurance  companies  have 
been  making  loans  upon  western  farming  lands. 
These  have  enabled  the  farmers  of  the  country  to 
acquire  land  and  to  cultivate  it,  to  erect  necessary 
buildings,  to  buy  stock,  and  to  continue  their  oper- 
ations through  unfavorable  years.  Lands  in  sections 
where  these  corporations  have  loaned  money  have  very 
greatly  increased  in  value,  largely  by  reason  of  a  re- 
duction in  the  rate  of  interest  which  has  come  through 
the  increase  of  those  funds  seeking  investment.  The 
development  of  railroads  and  other  corporations,  and 
the  improvement  of  cities  and  towns  have  been  pos- 
sible to  a  considerable  extent  through  the  accumula- 
tions of  life  insurance. 

Now,  the  life  of  every  human  being  who  earns 
more  than  is  required  for  his  own  subsistence  has  a 
money  value  to  some  one  else.  The  present  worth 
of  these  future  earnings  depends  upon  the  length  of 
time  during  which  they  will  probably  continue,  and  an 
estimate  of  them  can  only  be  made  after  considering 
the  age,  the  condition  of  health  and  the  circumstances 
of  the  individual.  Many  of  these  lives  are  so  uncer- 
tain in  their  tenure  that  no  definite  value  can  be  placed 
upon  them,  but  any  one  which  comes  within  the  class 
represented  by  a  standiard  mortality  tjable  can  be 
valued  with  an  accuracy  at  least  equal  to  that  which 
characterizes  market  transactions  in  other  kinds  of 
property.  If  a  value  could  be  fixed  for  every  pro- 
ductive life  and  a  suitable  premium  could  be  collected, 
the  insuring  of  each  such  life  for  a  certain  amount 
would  improve  the  general  condition  of  society.  The 
value  of  life  would  thus  be  more  thoroughly  under- 
stood, and  the  moral  tone  of  civilization  would  be 
vastly  elevated. 

MORTALITY  TABLES 

As  a  practical  question,  however,  it  has  proved 
feasible  to  protect  by  insurance  only  the  lives  of  those 


80  LECTURES  ON  LIFE  INSURANCE 

who  apply  to  the  various  corporations  undertaking 
this  business,  and  these  institutions  must  confine  their 
membership  to  those  who  are  shown  by  family  and 
personal  history,  and  physical  examination,  to  belong 
to  certain  well-defined  classes.  For  many  years  by  far 
the  greater  part  of  the  membership  of  the  life  insur- 
ance companies  has  been  drawn  from  a  class  which  is 
made  up  of  those  who  are  shown  to  be  free  from 
family  taint  and  personal  weakness,  and  all  of  whom 
in  a  general  way  may  be  said  to  have  similar  pros- 
pects of  longevity. 

Mortality  records  of  one  kind  or  another  have 
been  kept  for  many  centuries,  but  it  has  not  been 
practicable  until  within  the  past  sixty  or  seventy  years 
to  ascertain  the  death  rate  prevailing  among  those  who 
have  been  selected  as  proper  members  of  life  insur- 
ance companies.  Many  tables  have  been  made,  differ- 
ing somewhat,  but  indicating  a  mortality  table  which 
is  a  safe  basis  for  life  insurance  calculations. 

While  it  is  true  that  in  the  early  years  of  insur- 
ance, by  reason  of  careful  selection,  the  actual  mortal- 
ity experienced  by  prudently  managed  companies  has 
fallen  considerably  below  the  rate  indicated  by  the 
standard  tables,  yet  it  has  also  been  shown  that  the 
effect  of  selection  is  but  temporary,  and  that  under  the 
varying  conditions  which  have  prevailed,  and  are  likely 
to  govern  the  business  in  the  future,  these  tables  indi- 
cate a  mortality  no  greater  than  must  be  expected  in 
the  long  run,  even  by  the  most  skillfully  managed 
companies. 

Some  recent  writers,  from  insufficient  information 
and  superficial  examination,  have  taken  the  ground 
that  as  the  mortality  shown  by  the  companies  is  at 
this  time  falling  below  the  table  rate,  a  considerable 
reduction  can  safely  be  made  in  the  premiums  charged. 
It  is  important  that  the  public  should  clearly  under- 
stand this  point  before  forming  an  opinion  as  to  the 
conduct  of  the  business. 

INTEREST  RATE 

In  establishing  a  premium  which  shall  be  charged 
for  a  policy  of  insurance,  an  interest  rate  also  must 


LECTURES  ON  LIFE  INSURANCE  81 

be  assumed.  There  are  many  policies  in  force  in  this 
country  at  this  time  which  were  issued  more  than  fifty 
years  ago,  and  there  certainly  will  be  a  far  greater 
number  issued  at  this  time  which  will  still  be  in  force 
more  than  fifty  years  hence.  Not  only  the  mortality 
which  is  safe,  but  the  rate  of  interest  which  can  be 
secured  on  trust  funds  in  the  distant  future  must  be 
fixed  on  a  basis  which  will  leave  no  room  for  doubt  on 
the  part  of  the  company  undertaking  a  contract  of  this 
kind.  These  elements  and  no  other  enter  into  the  cal- 
culation of  the  net  premium.  To  this  net  premium 
must  be  added  the  margin  to  provide  for  expenses  and 
contingencies.  It  must  not  be  lost  sight  of  that  the 
business  is  burdened  with  heavy  taxes ;  that  the  cost 
of  maintaining  a  skillful  and  efficient  home  office  is 
of  necessity  considerable ;  that  an  agency  force  must 
be  paid  reasonable  compensation  for  its  services.  The 
safe  premium  which  is  charged  today  has  thus  far 
proved  larger  than  is  necessary ;  it  is  likely  that  it  will 
be  so  for  many  years  to  come.  The  Equitable  Life 
Assurance  Society  of  London,  whose  hisitory  will  be 
referred  to  later,  has  established  a  scale  of  rates  higher 
than  that  of  any  American  company.  Surplus  accu- 
mulations can  be  allotted  to  policyholders,  but  if  the 
premium  should  ever  prove  too  small,  either  from  an 
increase  of  mortality,  a  decrease  of  interest,  or  ad- 
ditional burdens  of  taxation  or  other  expenses  not  to 
be  foreseen,  there  is  no  escape  from  bankruptcy,  and 
the  failure  of  a  life  insurance  company  entails  far 
more  suffering  than  that  of  any  other  financial  insti- 
tution. 

USE  OF  INCOME 

It  will,  I  believe,  be  particularly  interesting  if  we 
analyze  somewhat  the  sources  of  income,  and  inquire 
what  has  become  of  the  receipts.  For  this  purpose 
I  have  taken  the  companies  doing  business  in  Massa- 
chusetts in  the  year  1904,  with  the  exception  of  those 
institutions  devoted  largely  to  what  is  known  as  the 
"Industrial"  business. 

The  expenses  of  life  insurance  companies  may 
be  separated  into  two  divisions — those  which  are  in- 


82  LECTURES  ON  LIFE  INSURANCE 

curred  in  the  conduct  of  the  home  office,  and  those 
which  are  used  to  maintain  the  agency  force.  Although 
it  is  not  possible  to  accurately  apportion  the  cost  of 
caring  for  outstanding  business  as  distinguished  from 
procuring  new  members,  yet  it  will  be  in  the  interest 
of  fairness  and  will  tend  to  a  fuller  comprehension  of 
the  facts,  if  we  divide  the  expenses  in  this  way  so  far 
as  is  practicable,  and  consider  the  work  done  in  each 
department,  home  office  and  agency.  While  the  oper- 
ations of  a  single  year  do  not  serve  to  show  the  labor 
expended  in  building  up  this  business,  yet  for  present 
purposes  it  is  sufficiently  suggestive  to  throw  much 
light  upon  the  questions  which  are  agitating  the  public. 
At  the  close  of  the  year  1904,  the  assets  of  the 
companies  operating  in  Massachusetts  amounted  to 
more  than  $2,000,000,000,  invested  chiefly  in  loans  ou 
real  estate,  stocks  and  bonds,  and  loans  on  policies  and 
other  collateral.  The  interest  received  upon  the  assets 
during  the  year  amounted  to  about  $90,000,000.  These 
securities  must  be  examined  carefully,  recorded  accu- 
rately and  kept  safely ;  they  must  be  invested  not  only 
with  intelligence  and  honesty,  but  also  at  a  rate  which 
will  yield  at  least  as  much  as  the  requirements  of  the 
business  call  for.  The  care  of  this  property  involves 
the  payment  of  salaries,  of  rents,  of  stationery,  and  of 
clerical  labor  of  a  high  character.  There  was  received 
by  these  companies  in  that  year  about  $350,000,000  of 
premiums.  This  came  in  large  and  small  amounts, 
each  of  which  had  -to  be  credited  to  its  proper  account 
and  kept,  like  all  the  other  accounts  of  these  companies, 
in  such  shape  as  to  answer  not  only  general  business 
requirements,  but  the  demands  of  state  officials  and  of 
the  public. 

LABOR  ENTAILED 

There  was  paid  out  during  the  year  more  than 
$100,000,000  for  death  claims  and  nearly  as  much 
more  for  matured  endowments,  dividends  and  sur- 
rendered policies.  This  involved  many  millions  of 
calculations,  almost  innumerable  entries  in  books,  and 
a  careful  examination  of  releases  and  receipts,  which 
involved  a  high  class  of  intelligence  in  employees 
conducting  the  work. 


LECTURES  ON  LIFE  INSURANCE  83 

More  than  700,000  new  policies  were  issued,  and 
the  applications  not  only  for  these  but  for  many  who 
were  declined  were  examined  critically,  and  passed 
upon  by  persons  skilled  in  these  duties.  At  the  close 
of  the  year  there  were  outstanding  nearly  4,000,000 
policies,  each  one  of  which  had  had  its  part  in  the 
year's  work,  for  it  had  to  be  recorded,  and  had  entered 
into  all  the  calculations  of  reserves,  and  all  the  inves- 
tigations which  are  so  important  not  alone  to  the 
companies  themselves,  but  to  the  public. 

It  is  difficult  to  comprehend  the  amount  of  labor 
and  detail  involved  in  properly  and  intelligently  caring 
for  a  business  of  this  magnitude. 

The  expenses  of  the  home  office  are  represented 
by  expenditures  for  salaries  of  some  $7,000,000,  and 
other  office  expenses  of  about  $10,000,000,  this  latter 
item  covering  rent,  books,  stationery,  printing,  adver- 
tising, postage,  and  all  the  necessary  equipment  not 
only  for  attending  to  the  old  business,  but  also  for 
furnishing  material  for  agency  work.  If  this  total 
outlay  could  be  apportioned  to  the  different  items,  the 
impression  which  it  makes  upon  the  public  mind 
would  be  very  much  modified. 

I  am  not  criticising  or  defending  individual  sal- 
aries which  may  be  and  no  doubt  are  like  those  in 
every  line  of  business  or  even  educational  work  in 
some  instances  too  large  and  in  some  too  small,  but  I 
believe  that  justice  demands  that  the  labors  performed 
and  the  responsibilities  carried  shall  be  considered  and 
understood  before  the  whole  system  and  all  of  its  rep- 
resentatives are  condemned  as  extravagant  and  waste- 
ful. 

Medical  examinations  consumed  $5,000,000.  In 
considering  the  cost  of  the  business  it  is  not  reason- 
able to  include  this  outlay.  It  is  made  once  for  all ; 
it  is  a  necessary  incident  of  the  business ;  it  protects 
present  policyholders;  it  serves  to  produce  savings 
in  mortality,  and  above  all  it  works  equity  between  the 
individual  members. 

The  taxes  for  the  year  amounted  to  more  than 
$7,000,000,  a  heavy  burden,  far  heavier  than  is  put 
upon  any  similar  institution,  greater  than  can  be  jus- 


84  LECTURES  ON  LIFE  INSURANCE 

tified  when  the  nature  of  the  business  is  taken  into  con- 
sideration. These  companies  are  not  responsible  for 
this  portion  of  the  expense  which  falls  upon  the  policy- 
holders. 

TO  AGENTS 

We  come  now  to  the  sum  paid  out  for  commis- 
sions to  agents  and  for  agency  expenses,  which 
amounts  to  something  more  than  $50,000,000.  Much 
of  this  was  undoubtedly  demanded  by  policyholders 
and  received  by  them,  and  whatever  this  portion  may 
be,  it  never  benefited  the  agent  or  the  company.  But 
aside  from  this  consideration,  we  find  that  there  were 
issued  during  the  year  more  than  700,000  new  policies, 
and  not  only  was  an  application  received  at  the  office 
for  each  one,  but  many  were  obtained  after  faithful 
labor  only  to  be  declined,  and  many  others  were 
solicited  which  were  never  secured.  The  new  premi- 
ums were  about  $70,000,000  and  the  renewal  premi- 
ums some  $280,000,000.  Many  of  these  latter  were 
collected  only  after  much  labor  and  persuasion,  and 
in  every  case  a  service  was  performed  for  the  policy- 
holder. While  the  sum  total  paid  to  agents  for  all 
duties  is  large,  it  is  fair  to  consider  that  it  was  paid 
to  many  thousand  individuals  who  were  benefiting  the 
world  by  their  labors,  and  without  whose  efforts  the 
risk  of  the  loss  of  future  earnings  would  be  prac- 
tically unprotected. 

I  am  not  advocating  exorbitant  commissions  and 
ruinous  expenses.  I  am  not  justifying  the  methods 
employed  by  any  company  whose  officers  are  inspired 
alone  by  personal  ambitions  or  by  desire  for  the  power 
which  magnitude  brings  with  it,  regardless  of  the 
rights  of  helpless  policyholders.  But  I  do  demand 
that  the  man  who  loosely  condemns  the  whole  system 
shall  examine  the  facts  in  all  their  details,  shall  con- 
sider what  life  insurance  means  to  the  individual  and 
to  the  state,  and  shall  clearly  understand  what  experi- 
ence has  shown  to  be  the  only  method  of  carrying  its 
protection  to  those  who  need  it,  before  he  puts  in 
print  false  ideas  which  will  inevitably  deter  many 
from  securing  this  shelter  for  dependents  until  it  is 
too  late. 


LECTURES  ON  LIFE  INSURANCE  85 

Are  agents  necessary  in  order  that  the  business 
shall  perform  its  best  service  ?  Experience  will  answer 
this  question. 

Among  the  various  corporations  organized  for  the 
purpose  of  insuring  human  lives,  one  of  the  most  in- 
teresting is  the  Equitable  Life  Assurance  Society  of 
London,  which  was  founded  in  1762,  and  which  has, 
therefore,  been  in  the  business  continuously  for  143 
years.  Its  first  rates  were  based  on  the  bills  of  mor- 
tality of  the  City  of  London,  during  a  period  which 
included  the  year  1740,  when  the  death  rate  was 
almost  equal  to  that  of  a  plague,  and  were  in  conse- 
quence unnecessarily  high. 


HAS  NO  AGENTS 

In  1769  the  Northampton  Table  was  published, 
and  the  rates  of  the  Equitable  were  materially  reduced 
in  1777.  Subsequently  they  were  still  further  dimin- 
ished because  the  experience  of  the  company  showed 
a  less  death  rate  than  was  provided  for  in  the  tables 
from  which  the  premiums  were  derived. 

Throughout  the  history  of  this  remarkable  com- 
pany, it  has  been  managed  with  an  unusual  degree  of 
intelligence  and  economy.  Its  lives  have  been  well 
selected,  its  funds  have  been  judiciously  invested,  and 
its  results  to  its  policyholders  have  not  probably  been 
equaled  by  any  other  similar  institution.  Its  ratio  of 
expense  is  much  less  than  that  of  any  American  com- 
pany. In  short,  it  is  a  model  of  stability,  and  it  has 
justly  retained  the  confidence  of  the  English  people. 
At  no  time  in  its  history  has  there  been  any  doubt  cast 
upon  its  financial  strength. 

Its  prospectus  contains  the  following  statement: 
"The  Society  deals  directly  with  the  public  without 
the  intervention  of  the  unnecessary  middleman.  It 
has  no  agents  and  pays  no  commissions,  by  which 
alone  members  have  benefited  to  the  extent  of  at  least 
two  million  pounds.  All  that  an  applicant  has  to  do 
is  to  write  to  the  actuary  for  a  prospectus,  which  con- 
tains full  instructions  how  to  proceed." 

In  the  year  1819  there  were  in  force  9,650  policies, 


86  LECTURES  ON  LIFE  INSURANCB 

insuring  some  $80,000,000.  In  1829  there  were  8,750 
policies  in  force,  insuring  something  less  than 
$75,000,000.  In  1839  there  were  7,450  policies  in 
force,  insuring  about  $50,000,000.-  In  1849,  6,000 
policies,  insuring  some  $40,000,000,  in  1859  there  were 
4,650  policies  insuring  $30,000,000,  in  1869  there  were 
3,800  policies  insuring  $25,000,000  and  for  twenty 
years  the  figures  remained  nearly  stationary.  In  the 
thirty  years  from  1870  to  1900,  the  Society  issued 
6,152  new  policies,  an  average  of  about  200  a  year. 
This  company  has  done  a  service  to  its  members. 


NEEDS  OF  AGENTS 

If  life  insurance  is  a  good  thing  for  the  family 
and  for  the  state,  it  may  be  asked  why  the  benefits  of 
this  model  society  have  not  been  more  widely  spread 
abroad.  The  answer  is  plain.  The  taking  of  a  life 
insurance  policy  is  a  particularly  unselfish  act.  The 
spending  of  money  which  will  not  be  returned  during 
the  lifetime  of  him  who  spends  it  is  not  an  act  which 
appeals  to  the  taste  of  the  average  man,  and  he  is 
always  ready  to  postpone,  if  not  altogether  forego, 
this  particular  kind  of  a  luxury.  It  requires  the  expla- 
nation of  the  agent  as  to  the  nature  of  the  business, 
what  his  own  company  has  performed  and  can  accom- 
plish, and  all  the  arguments  which  he  can  use  in  over- 
coming human  selfishness.  The  business  is  of  such 
a  peculiar  nature  that  it  never  has  been  and  never  will 
be  built  up  to  any  considerable  extent  except  by  the 
aid  of  the  agent  who  must  visit  and  labor  with  the 
public.  He  is  a  necessary  element  of  the  business,  and 
it  cannot  perform  its  beneficent  work  without  him 
any  more  than  the  home  office  can  get  along  without 
those  who  shall  manage  and  direct  its  affairs. 

No  more  convincing  proof  of  the  soundness  of 
this  statement  need  be  made  than  that  furnished  by 
the  experience  of  the  Equitable.  In  the  99  years  end- 
ing December  31,  1899,  the  Society  received  in  pre- 
miums about  $130,000,000.  During  the  same  time  it 
paid  out  in  claims  and  surrender  values  about  $228,- 
000,000.     In  other  words,  it  paid  to  its  policyholders 


LECTURES  ON  LIFE  INSURANCE  87 

and  their  beneficiaries  $176  for  every  $100  it  had 
received  in  premiums,  and  in  addition  to  that  had  more 
than  $23,000,000  left  over.  If  this  sum  be  added  to 
the  payments,  it  appears  that  for  every  $100  of  premi- 
ums received,  the  Society  accounted  to  its  policy- 
holders for  $190. 

Each  one  of  several  English  companies  in  each 
year  through  an  agency  force  issues  more  policies  than 
the  Equitable  has  issued  in  twenty  years.  An  Ameri- 
can company  which  established  an  agency  in  Great 
Britain  not  many  years  ago,  through  an  agency  force 
issued  more  policies  in  that  country  in  the  year  1903 
than  the  Equitable  had  issued  in  thirty  years — and  this 
notwithstanding  the  record  the  Equitable  had  made 
for  returns  to  its  policyholders,  and  the  further  fact 
that  it  advertises  to  issue  nearly  all  the  varieties  of 
policies  in  use  by  our  companies,  and  some  which  are 
peculiar  to  Great  Britain. 

RESULT  OF  THIS  TRIAL 

Although  only  certain  companies  and  individuals 
are  now  under  investigation  I  think  we  need  not  dis- 
guise from  ourselves  that  Life  Insurance  is  on  trial 
before  the  bar  of  public  opinion.  The  result  of  this 
trial  will  be  of  incalculable  importance  not  only  to  our- 
selves and  to  the  companies  which  we  represent,  but 
also  to  the  cause  of  humanity.  The  occasion  has 
arisen  which  cannot  be  obscured  or  deferred,  when 
we  must  demonstrate  both  the  reasons  for  the  exist- 
ence of  the  institution  and  the  necessity  for  its  con- 
tinuance and  growth. 

It  will  not  avail  to  show  what  has  been  accom- 
plished and  to  make  general  claims  that  whatever  has 
been  done  has  been  the  result  of  circumstances  over 
which  we  have  had  no  control.  It  will  not  be  suf- 
ficient to  urge  that  methods  adopted  by  others  have 
compelled  us  to  follow  in  practices  which  are  in  them- 
selves demoralizing  and  wrong.  We  have  not  been 
drafted,  we  have  voluntarily  enlisted  in  a  sacred  cause, 
in  a  business  which  had  its  origin  and  attains  its 
growth    in  p appeals  to   the  best   qualities   of   human 


88  LECTURES  ON  LIFE  INSURANCE 

nature.  We  cannot  hold  up  to  a  man  the  picture  of 
his  helpless  widow  and  orphans,  and  offer  to  care  for 
them  at  the  lowest  cost  consistent  with  safety,  and  at 
the  same  time  betray  him  by  using  his  contributions  in 
ways  not  strictly  within  the  spirit  of  the  contract. 

We  have  reached  a  crisis  in  our  business  and  its 
future  will  depend  largely  upon  the  verdict  rendered 
by  the  public  when  the  evidence  shall  be  fairly  before 
them. 

THE  RIGHT  COURSE 

We  have  it  in  our  power  to  do  a  service  to  the 
cause  for  which  future  generations  will  have  reason 
to  hold  us  in  grateful  remembrance.  While  we  can 
and  do  claim  that  the  world  is  better  for  the  institu- 
tion of  life  insurance,  that  it  has  been  worth  all  the 
cost  and  labor  which  have  attended  its  growth  and  far 
more,  let  us  also  acknowledge  our  mistakes.  Let  us 
admit  that  we  have  learned  lessons  of  experience,  bit- 
ter sometimes  but  salutary  always,  that  we  do  not 
differ  from  right-minded,  earnest  and  broad  men  who 
are  as  eager  to  commend  the  good  as  they  are  to  con- 
demn the  evil.  Let  us  encourage  the  idea  of  protec- 
tion against  the  loss  of  future  earnings,  and  discourage 
the  desire  of  speculation  and  profitable  investment. 
Realizing  that  the  field  for  legitimate  life  insurance  is 
practically  limitless,  let  us  take  care  that  we  do  not 
infringe  upon  the  rights  of  our  fellow  workers,  and 
sacrifice  our  reputation  and  our  proper  rewards  by 
accepting  less  than  what  we  claim  is  a  fair  premium, 
thus  apparently  admitting  that  our  contracts  are  not 
based  on  equity  and  justice. 

And  let  me  say  here,  that  while  we  shall  the  more 
quickly  secure  the  confidence  of  the  people  if  we 
frankly  acknowledge  our  faults  and  mistakes,  we 
have  a  right  to  demand  that  a  verdict  shall  not  be  ren- 
dered on  one  sided  and  insufficient  testimony.  And 
above  all  let  us  never  forget  that  the  public  will  not 
respect  us  and  our  calling  unless  we  respect  ourselves 
and  each  other. 

If  you  have  not  confidence  in  your  company,  you 
cannot  expect  to  inspire  confidence  in  others,  and  you 


LECTURES  ON  LIFE  INSURANCE  89 

cannot  cast  discredit  upon  your  competitor  without 
simply  postponing  the  time  when  the  people  will 
believe  that  the  business  is  conducted  with  as  great  a 
regard  for  duty  as  they  are  asked  to  have  when  they 
are  urged  to  confide  their  savings  to  our  keeping. 

You  have  done  me  the  honor  to  ask  me  to  address 
you  on  this  occasion,  and  you  have,  therefore,  given 
me  the  opportunity  of  expressing  some  opinions  which 
I  have  formed  after  a  long  experience  in  the  business 
and  much  thought  as  to  its  present  condition  and 
future  prospeots. 


OPINIONS  BASED  ON  EXPERIENCE 

I  believe  that  life  insurance  is  a  good  thing  for 
the  individual  and  for  the  state.  I  believe  that  legiti- 
mate life  insurance  is  not  only  not  overdone,  but 
that  it  would  be  for  the  best  good  of  the  public  if  a 
vastly  greater  amount  should  be  carried  than  is  now 
in  force.  The  census  of  1900  shows  that  there  were 
385,610  persons  in  Connecticut  engaged  in  all  occupa- 
tions. Of  this  number  186,675,  or  somewhat  less  than 
one-half,  were  engaged  in  manufacturing,  and  the 
amount  paid  by  these  establishments  in  wages  and 
salaries  during  that  year  was  $95,053,775.  The  grand 
list  of  Connecticut  in  the  year  1900  amounted  to 
$694,000,000.  The  present  value  of  the  future  surplus 
earnings  of  those  engaged  in  manufacturing  alone 
was  undoubtedly  greater  than  the  grand  list.  The 
report  of  the  insurance  commissioner  of  Connecticut 
for  the  year  1900  shows  that  there  were  at  the  close 
of  that  year  life  insurance  policies  outstanding  on 
the  lives  of  citizens  of  the  state  representing  $149,970,- 
752  of  insurance.  The  crop  is  small  compared  with 
the  size  of  the  field  and  the  richness  of  the  soil. 

I  believe  that  the  benefits  of  life  insurance  can- 
not be  generally  spread  over  the  country  excepting 
through  the  efforts  of  agents.  I  believe  that  the 
policyholder  should  be  given  to  understand  with  the 
utmost  frankness  that  he  cannot  get  his  insurance  for 
the  actual  mortality  cost,  any  more  than  he  can  buy 
his  barrel  of  flour  for  the  cost  of  the  wheat  which  goes 


i    UN 


UNIVERSITY   I 


90  LECTURES  ON  LIFE  INSURANCE 

into  it,  or  his  fire  insurance  for  his  share  of  the  actual 
losses.  I  believe  that  the  home  office  employee, 
whether  he  be  an  officer  or  a  clerk,  is  entitled  to  rea- 
sonable compensation  for  his  service,  and  no  more. 
I  believe  that  the  general  agent  and  the  solicitor  should 
be  fairly  paid.  1  believe  that  there  are  faults  in  the 
business  which  should  be  corrected,  and  that  there 
is  a  better  prospect  of  reformation  now  than  there 
ever  was  before. 

I  do  not  believe  that  any  ratio  of  expense  to 
income  necessarily  proves  economy,  efficiency,  useful- 
ness or  the  opposite.  I  do  not  believe  that  laws  can 
transform  dishonest  men  into  honest  ones.  I  do  not 
believe  that  the  acts  of  a  legislature  can  produce  con- 
fidence where  it  is  not  deserved. 

I  believe  that  public  opinion  is  stronger  than 
statutes,  and  that  that  can  be  secured  and  retained 
only  by  fair  and  honest  practices  and  absolute  frank- 
ness in  all  things.  And  I  believe  above  all  that  we  have 
it  in  our  power  at  this  time,  by  fair  dealing  toward 
each  other  and  the  public,  to  win  the  confidence  of 
thoughtful  people,  to  the  end  that  our  business  shall 
be  better  and  greater  than  it  ever  has  been. 


LIFE  INSURANCE  AND  BANKING 


(Delivered  before  the  Bankers'  Association  at  Lenox,  Mass.) 


^HE 


business  of  the  world  is  conducted  on  credit. 
A  railroad  company  borrows  money  of  its  stock- 
holders, bondholders  and  often  of  others.  A  manu- 
facturing corporation  obtains  the  means  with  which 
to  carry  on  its  business  from  similar  sources.  A  bank 
organizes  by  borrowing  money  from  its  stockholders, 
and  conducts  its  operations  by  borrowing  from  its  de- 
positors. A  merchant  invests  his  own  -capital,  and 
then  borrows  on  the  strength  of  his  resources  to  en- 
large his  business  and  increase  his  profits.  Every 
corporation  and  individual  in  active  affairs  is  either  a 
borrower  or  a  lender,  and  frequently  both. 

But  money  is  not  loaned  without  security,  nor  is 
it  borrowed  without  some  guarantee  beside  the  mere 
promise  to  pay.  Property  which  is  pledged  to  secure 
payment  is  of  various  kinds — land,  buildings,  mer- 
chandise and  evidences  of  other  indebtedness,  such  as 
bonds  and  certificates  of  stock.  Collateral  security 
is  defined  to  be  "Any  property  or  right  of  action,  as 
a  bill  of  sale  or  stock  certificate,  which  is  given  to 
secure  the  performance  of  a  contract  or  the  discharge 
of  an  obligation,  and  as  additional  to  the  obligation 
of  that  contract."  No  loan  is  ever  made  without  se- 
curity, for  it  would  then  be  a  gift,  and  in  a  broad  way, 
all  loans  are  made  upon  collateral  security. 

The  banker  has  to  do  chiefly  with  the  loaning  of 
money  upon  notes,  which  obligations  rest  upon  the 
resources  of  the  borrower — merchandise,  amount  due 
from  creditors,  lands  and  buildings,  and  upon  his  per- 
sonal qualities.  These  loans  are  generally  made  for  a 
comparatively  short  time.  A  loan  upon  real  estate 
is  often  made  for  a  term  of  years,  but  commercial 
paper  is  made  for  but  a  few  months. 

It  wall  be  interesting  to  inquire  why  a  savings 
bank  will  make  a  loan  for  a  term  of  years  on  a  piece 


92  LECTURES  ON  LIFE  INSURANCE 

of  real  estate,  and  why  the  same  institution  will  not 
make  a  similar  loan  upon  the  security  which  is  offered 
by  the  note  of  a  merchant  or  manufacturer.  The 
margin  may  be  quite  as  great  and  quite  as  real  in  the 
one  case  as  in  the  other. 

Lenders  desire,  no  matter  what  the  security  may 
be,  that  a  borrower  should  be  of  good  character. 
This  is  true  whether  they  deal  with  a  corporation,  firm 
or  an  individual.  A  railroad  which  is  controlled  and 
managed  by  reputable  men  can  dispose  of  its  bonds 
to  better  advantage  than  one  the  reputation  of  whose 
officers  and  directors  is  tainted.  The  name  of  an 
old  and  honorable  firm  has  a  distinct  value  in  the 
money  market.  The  man  who  has  for  many  years 
enjoyed  an  unvarying  record  of  promptly  meeting  his 
liabilities  secures  accommodation  on  the  most  favor- 
able terms. 

VALUE  OF  A  HUMAN  LIFE 

The  chief  distinction,  however,  between  the  fifty- 
year  bond  of  a  railroad  and  the  four-months'  note  of 
a  merchant  lies  in  the  value  of  individual  human  life. 

There  is  no  value  in  either  except  that  which  is 
based  on  human  necessities  and  activities,  but  the  bond 
is  expected  to  be  cared  for  by  the  continuance  and 
increase  of  the  general  population,  while  the  note 
is  expected  to  be  paid  out  of  the  profits  often  of  a 
single  life.  A  dying  man  does  not  borrow  that  which 
is  to  be  paid  after  his  death  if  the  money  is  to  be 
used  in  active  business.  No  matter  how  great  the  se- 
curity is  and  how  certain  the  ultimate  payment  may 
be,  the  purchaser  of  commercial  paper  relies  in  nearly 
every  case  upon  the  continuance  of  the  life  q*  the 
maker  of  the  note  for  its  payment  when  due.  The 
banker  arranges  his  maturities  on  this  assumption, 
and  his  business  is  adjusted  with  this  in  view. 

The  value  of  an  individual  human  life  is,  there- 
fore, an  element  as  clearly  defined  in  the  transaction 
of  a  bank  of  discount  as  the  value  of  real  estate  in 
the  investments  of  a  savings  bank.  If  a  merchant, 
by  his  skill,  intelligence  and  experience  can  make  a 
profit  over  and  above  his  business  and  family  expenses 


LECTURES  ON  LIFE  INSURANCE  93 

of  $10,000  a  year,  then  whatever  worth  there  is  in 
his  stock  of  goods  and  other  resources  is  increased 
by  the  value  of  his  own  services — if  he  lives.  This  is 
the  best  asset  which  the  creditors  of  an  honest  man 
have.  His  stock  may  burn  and  his  bills  may  not 
be  paid,  but  his  talents  will  still  go  along  with  his 
name — if  he  lives. 

THE  SECURITY  DESIRED 

The  applicant  for  a  loan  makes  a  statement.  If 
he  owns  real  estate,  its  value  or  the  equity  in  it  if  it 
is  mortgaged  is  considered,  his  stock  and  the  appli- 
ances for  carrying  on  his  affairs  are  estimated,  and 
he  is  required  to  protect  these  by  fire  insurance.  But 
beyond  all  this,  his  skill  as  a  buyer  and  seller,  his 
knowledge  of  credit  and  his  prudence  and  integrity 
are  of  no  less  weight  in  determining  the  amount  which 
he  can  borrow  and  the  terms  he  can  secure. 

The  banker  must  keep  his  money  invested,  for 
it  is  by  his  interest  account  that  he  makes  his  profit. 
He  welcomes  the  borrower  who  confers  a  benefit  while 
he  secures  a  favor — if  he  lives.  The  borrowed  money 
is  not  deposited  in  a  bank  at  a  greater  rate  of  interest 
than  is  paid  for  it.  It  is  used  to  buy  goods  which  are 
to  be  sold  at  a  profit  to  those  who  in  turn  require 
credit.  This  gain  will  depend  upon  shrewdness  in 
buying,  popularity  in  selling,  and  judgment  in  trust- 
ing. Experience  has  taught  the  banker  whom  he  can 
trust — if  he  lives.  ,    ' 

The  putting  together  of  all  the  different  ele- 
ments which  go  to  make  up  the  value  of  a  note  be- 
comes a  matter  of  instinct  to  him  who  has  long  ob- 
served the  successes  and  failures  of  those  engaged  in 
making,  and  buying  and  selling  the  necessities  and 
luxuries  of  life.  By  indications  which  escape  the 
ordinary  man,  the  banker  learns  who  will  pay  his  note 
— if  he  lives.  But  if,  when  the  obligation  falls  due, 
the  signer  is  not  here  to  meet  it,  who  will  pay?  The 
stock  of  goods  and  the  book  accounts  may  in  time  be 
sufficient  to  liquidate  all  indebtedness,  but  the  most 
important  asset,   the  skill,  the  ability,  the  attractive 


94  LECTURES  ON  LIFE  INSURANCE 

qualities  which  have  been  relied  upon  to  make  good 
the  liability  when  due,  is  gone.  And  thus  it  comes 
about  that  the  two  great  interests  of  banking  and  life 
insurance  are  closely,  connected  and  have  mutual 
interests. 

GOT  HIS  CREDIT 

At  a  meeting  of  the  directors  of  a  bank  not  long 
ago,  the  president  presented  the  statement  of  a  mer- 
chant who  desired  a  line  of  credit.  He  offered  a  large 
amount  of  valuable  real  estate,  subject,  however,  to  a 
mortgage.  He  had  a  stock  of  modern  goods  and 
many  excellent  book  accounts.  He  showed  a  con- 
siderable margin  of  resources  over  liabilities,  and  yet 
the  statement  was  not  on  the  whole  one  which  would 
find  favor  with  a  bank  where  his  personal  abilities 
were  not  known.  Each  member  of  the  board  knew 
him,  and  respected  his  character  and  his  skill.  It 
was  shown  that  he  had  cleared  a  handsome  profit 
each  year  for  a  long  time.  There  was  but  one  ele- 
ment of  weakness  in  the  proposition,  but  when  the 
president  stated  that  he  had  $100,000  of  life  insur- 
ance payable  to  his  estate,  that  element  of  weakness 
vanished,  and  he  was  cheerfully  given  the  credit 
he  desired.  This  is  by  no  means  an  unusual  case,  for 
the  question  of  personal  ability  and  integrity  must 
more  and  more  enter  into  the  matter  of  credit,  and 
there  is  only  one  way  of  finding  protection  against 
the  loss  which  would  be  occasioned  by  the  termina- 
tion of  a  valuable  life. 

SECURITY  BACK  OF  POLICY 

In  making  our  deposits  we  naturally  and  properly 
scan  the  statement  of  the  bank  in  which  we  are  plan- 
ning to  place  our  money  without  security,  except  that 
afforded  by  its  financial  strength.  In  accepting  life 
insurance  as  part  security  for  loans,  it  is  now  and 
will  become  still  more  important  for  the  lender  to  be 
able  to  form  an  intelligent  opinion  as  to  the  security 
which  lies  back  of  that  policy  of  life  insurance  which 
will  form  an  important  part  of  his  protection,  and  it 
will  therefore  scarcely  be  inopportune  to  discuss  some- 
what briefly  the  question  of  surplus  in  life  insurance. 


LECTURES  ON  LIFE  INSURANCE  95 

The  Century  Dictionary  defines  surplus  as  the 
"excess  beyond  what  is  prescribed  or  wanted."  In 
financial  institutions  it  is  the  excess  of  assets  at  their 
real  values  over  obligations.  A  bank  has  a  surplus 
if  its  property  exceeds  what  it  owes  to  its  depositors 
and  others,  and  the  amount  of  its  capital  stock.  A 
savings  bank  like  those  in  the  Eastern  States  which 
have  no  stock  has  a  surplus  if  its  assets  are  greater 
than  its  deposits  and  any  other  debts  which  it  may 
have.  The  surplus  of  an  institution  like  these  is 
easily  determined,  but  the  liabilities  of  an  insurance 
company  cannot  be  stated  with  perfect  accuracy.  A 
fire  insurance  company  has  certain  policies  outstand- 
ing, and  the  risk  of  loss  must  be  borne  so  long  as  they 
remain  in  force.  The  only  way  to  estimate  what  it 
will  cost  the  company  to  carry  them  for  the  few  years 
during  which  they  will  run  is  to  judge  from  experi- 
ence what  the  losses  will  probably  be.  This  amount, 
called  the  "Reserve,"  is  generally  the  chief  item  in 
the  list  of  liabilities. 

"RESERVE" 

That  liability  of  a  life  insurance  company  which 
is  called  the  "Reserve"  is  that  amount  held  at  any 
time,  which,  if  improved  at  a  given  rate  of  interest  and 
added  to  the  premiums  to  be  received,  will  be  sufficient 
to  meet  policy  obligations  as  they  mature.  The  length 
of  an  individual  life  is  uncertain,  but  in  a  considerable 
number  the  law  of  mortality  is  well  known,  if  the  lives 
belong  to  a  certain  class..  A  mortality  table  and  a 
rate  of  interest  having  been  assumed,  the  present  value 
of  the  outstanding  policies  is  easy  to  determine.  It 
is  also  a  simple  matter  to  calculate  the  premiums  which 
will  be  received  on  these  policies  prior  to  their  ma- 
turity, and  the  difference  between  the  two  is  the  re- 
serve. 

In  other  words,  the  reserve  under  any  policy  is 
the  difference  between  the  present  value  of  the  sum 
insured,  and  the  present  value  of  the  future  payments 
which  are  to  be  made  to  secure  that  sum.  If  all  the 
payments  contemplated  have  beein  made,  then  the 
liability  is  simply  the  present  value  of  the  sum  insured ; 


96  LECTURES  ON  LIFE  INSURANCE 

if  there  are  still  payments  to  be  made,  the  reserve  is 
the  difference  between  the  two  amounts.  The  mortal- 
ity table  in  most  common  use  is  called  the  American 
Experience  Table,  and  was  constructed  from  an  ex- 
perience in  this  country.  It  does  not  differ  materially 
from  itables  which  have  been  made  from  record's 
in  other  countries,  and  in  a  well  selected  and  pro- 
gressive business  the  actual  death  rate  will  most  cer- 
tainly fall  below  that  indicated  by  this  mortality  table. 

THE  DISTANT  FUTURE 

The  assumed  rate  of  interest  was  for  many  years 
four  per  cent.,  but  as  the  country  grew  older  and  the 
supply  of  money  seeking  safe  investment  increased, 
the  rate  which  could  be  obtained  on  securities  suit- 
able for  trust  funds  gradually  decreased.  Life  insur- 
ance has  to  do  with  the  distant  future,  and  a  policy 
once  issued  can  never  be  recalled,  and  changed,  and 
it  may  continue  for  the  greater  part  of  a  century. 
Every  possibility  must  be  provided  for  at  the  outset, 
and  the  assumed  rate  of  interest  has  therefore  been 
reduced  to  three  and  one-half  per  cent,  and  three  per 
cent. 

While  the  same  theoretical  standards  are  applied 
to  companies  whose  methods  and  experiences  differ 
widely,  yet  they  are  sufficiently  safe  to  serve  as  a 
test  of  solvency  in  the  case  of  any  company  managed 
with  a  fair  degree  of  intelligence  and  care.  Should  it 
appear  that  the  death  rate  in  any  life  insurance  com- 
pany runs  persistently  above  the  table,  then  one  vital 
element  of  its  calculations  is  unsound.  On  the  other 
hand,  if  the  raite  of  interest  received  should  prove  to 
be  less  than  that  assumed,  that  element  of  the  liabilities 
would  be  deceptive  and  a  dangerous  condition  would 
exist. 

All  these  calculations  are  based  upon  the  receipt 
of  certain  arbitrary  net  premiums,  while  in  practice 
the  actual  premiums  charged  in  the  policies  are  con- 
siderably larger,  a  loading  being  added  to  provide  for 
expenses,  taxes  and  contingencies.  If  these  necessary 
outgoes  prove   to  be   less   than  this   loading,   and   if 


LECTURES  ON  LIFE  INSURANCE  97 

the  net  rate  of  interest  received  is  greater  than  that 
assumed,  a  surplus  arises  from  time  to  time  which 
in  mutual  life  insurance  is  distributed  to  members. 

FINANCIAL  STRENGTH 

The  question  of  financial  strength  is  one  of  far 
greater  importance  in  case  of  a  life  insurance  com- 
pany than  in  any  other  financial  institution,  because 
in  case  of  failure,  there  will  certainly  be  many  instances 
where  the  holders  of  policies  by  reason  of  impaired 
health  would  be  unable  to  procure  insurance  at  any 
cost.  In  deciding,  therefore,  as  to  the  ability  of  a  life 
insurance  company  to  carry  out  its  contracts  for  the 
time  being  and  in  the  distant  fuure,  it  will  be  necessary 
not  only  to  examine  the  assets  and  liabilities  with  a 
view  to  determining  whether  they  are  conservatively 
stated,  but  also  so  far  as  possible  to  ascertain  the 
mortality  and  the  rate  of  interest.  In  a  company  of 
considerable  size  and  age,  if  there  is  sufficient  property 
conservatively  valued  and  productive,  to  meet  the 
liabilities  fully  and  safely  calculated,  the  institution 
will  be  sound,  although  as  a  matter  of  reputation  and 
to  provide  for  possible  temporary  fluctuations,  it  will 
be  clearly  desirable  to  have  a  margin.  In  a  mutual 
life  insurance  company,  however,  the  policyholders 
are  entitled  to  surplus  accumulations  apportioned  at 
proper  intervals  to  as  great  an  extent  as  absolute  safety 
will  permit. 

While  the  disclosures  of  the  past  year  (1905)  have 
wrought  havoc  with  reputations  and  have  brought 
certain  discredit  upon  individual  institutions,  the  real 
strength  of  life  insurance  has  been  brought  out  as  it 
scarcely  could  have  been  in  any  other  way.  The  re- 
sult of  all  this  will  probably  be  that  the  entire  busi- 
ness will  go  through  a  very  marked  and  radical 
change,  and  the  feature  of  protection,  for  which  the 
business  exists,  will  be  far  more  prominent  in  the 
future  than  it  has  been  in  the  past.  To  the  thought- 
ful person  life  insurance  has  not  suffered  damage,  but 
rather  there  has  been  an  education.  What  the  institu- 
tion has  done,  and  what  it  can  do  for  the  individual 


98  LECTURES  ON  LIFE  INSURANCE 

and  for  the  state  is  now  much  clearer  in  the  minds 
of  the  general  public  than  ever  before.  The  demand 
for  legitimate  life  insurance  will  not  decrease,  but 
rather  increase.  Its  importance  and  even  necessity  in 
family  and  business  affairs  will  be  far  better  under- 
stood in  consequence  of  the  attention  which  has  been 
given  to  it.  The  people  will  still  take  life  insurance, 
but  they  will  demand  that  those  companies  to  which 
are  committed  this  most  important  and  sacred  of  all 
trusts  be  conducted  on  sound  principles,  and  with 
honesty  and  economy. 


FINANCIAL  SIDE  OF  LIFE  INSURANCE 


(Delivered  before  General  Managers'  Association) 


I    HE  individual  may  invest  his  surplus  funds  in 

whatever  way  may  suit  his  needs  or  appeal  to  his 
judgment.  With  him  there  is  a  wide  range,  from  the 
bond  or  stock  which,  by  reason  of  its  superior  safety, 
yields  but  a  small  return,  to  the  property  which  prom- 
ises a  large  increase  in  its  market  value.  In  either 
case  the  revenue  is  his  and  he  will  enjoy  the  profit 
or  suffer  the  loss. 

In  a  very  different  position  are  those  who  have 
had  placed  in  their  charge  property  belonging  to 
others.  Here  unusual  risks  of  the  loss  of  capital 
should  be  avoided  and  safety  should  be  considered  of 
much  more  importance  than  large  returns  or  the  hope 
of  an  increase  in  the  principal.  Among  those  whose 
duty  it  is  to  preserve  intact  the  sums  which  they  are 
called  upon  to  invest  are  the  officers  of  banks  and 
insurance  companies. 

Corporations  engaged  in  banking  for  the  purpose 
of  making  profits  for  their  stockholders  receive  the 
money  of  their  depositors,  frequently  allowing  inter- 
est for  its  use,  under  an  agreement  to  return  it  when- 
ever called  for.  This  money  must  be  invested  at  a 
rate  sufficient  to  pay  interest  to  depositors  if  any  be 
allowed,  meet  expenses  and  losses,  and  in  addition  pro- 
vide a  profit  to  those  who  have  furnished  the  capital 
for  the  safe  transaction  of  the  business. 

Savings  banks  without  capital  are  mutual  insti- 
tutions conducted  for  the  benefit  of  their  depositors 
who  are  led  to  expect  such  a  rate  of  interest  as  is  com- 
patible with  entire  safety.  In  all  these  cases  depositors 
can  call  for  their  money  at  any  time  and  preparations 
must  be  made  for  satisfying  these  demands,  although 
experience  has  shown  that  apart  from  a  panic  induced 
by  fear  of  loss,  no  great  sums  will  be  required  at  any 
one  time. 


100  LECTURES  ON  LIFE  INSURANCE 

In  all  these  institutions  the  risk  of  loss  of  the 
principal  sum  should  be  guarded  against  with  the 
greatest  care  and  foresight,  but  the  rate  of  interest 
which  must  be  received  is  not  essential  to  the  carry- 
ing out  of  their  agreements.  The  interest  allowed  to 
depositors  may  be  reduced  at  any  time  when  the  rate 
obtainable  on  safe  securities  falls. 

Insurance  companies  receive  their  premiums  in 
advance  and  must  lay  aside  sufficient  amounts  to  meet 
the  obligations  they  assume  whenever  they  mature. 
The  contracts  undertaken  by  these  corporations,  other 
than  those  engaged  in  life  insurance,  ordinarily  run 
but  a  limited  time,  and  the  premiums  are  calculated 
to  cover  this  hazard.  The  sums  necessary  to  meet 
the  expected  claims  are  required  only  for  these  short 
periods  and  the  interest  question  is,  therefore,  not 
an  essential  element.  In  a  large  business  the  interest 
earnings  form  an  important  item  in  the  profits  of  the 
operations,  but  they  do  not  enter  into  the  calculation 
of  the  premiums  or  reserves,  and  hence  there  is  no 
restriction  in  this  direction  in  the  matter  of  invest- 
ments. But  while  the  claims  incurred  can  be  fore- 
told with  much  accuracy  ordinarily,  there  is  always 
a  possibility  that  more  than  the  anticipated  amounts 
will  be  required  by  some  unexpected  and  widespread 
disaster.  These  companies,  therefore,  usually  invest 
a  large  proportion  of  their  resources  in  securities  which 
can  be  readily  converted  into  cash. 

A  life  insurance  company  differs  in  several  very 
important  particulars  from  these  institutions  both  as 
to  the  calculation  of  its  premiums  and  the  investment 
of  the  amounts  held  for  the  final  payment  of  its  policy 
contracts.  At  the  inception  of  such  a  contract  the 
premium  which  is  to  be  received  at  stated  intervals 
perhaps  for  many  years  is  stipulated,  and  in  no  way 
can  it  be  increased.  It  is  of  vital  importance,  there- 
fore, that  the  basis  of  this  calculation  should  be  sound 
beyond  question.  The  rate  of  interest  assumed  must 
consequently  be  somewhat  less  than  will  be  realized  in 
practice.  A  part  of  the  premium  receipts  must  be  set 
aside  at  a  rate  which  will  surely  be  obtained  for  many 
years,  during  which  the  conditions  affecting  the  earn- 


LECTURES  ON  LIFE  INSURANCB  101 

ing  power  of  money  may  undergo  marked  changes. 
The  calculation  of  premiums  and  reserves  makes  no 
provision  for  losses  on  investments,  or  for  any  interval 
between  the  payment  of  any  sum  falling  due  and  its 
reinvestment.  The  actual  rate  at  which  investments 
are  made  must,  therefore,  be  somewhat  higher  than 
the  assumed  rate  to  make  good  the  practical  require- 
ments without  providing  for  any  surplus  for  returns 
to  policyholders  from  this  source. 

As  many  of  the  contracts  undertaken  by  life  in- 
surance companies  provide  for  payment  at  stated  times, 
and  as  many  contain  agreements  to  pay  cash  values 
upon  surrender,  liberal  provision  should  be  made  to 
meet  any  demands  which  may  arise  from  any  cause,  and 
an  abundant  quantity  of  convertible  securities  should  be 
held,  although  the  necessity  of  providing  for  large  calls 
for  cash  is  not  so  great  as  in  the  case  of  a  bank. 

While  the  system  of  surrender  values  would  seem 
to  require  liberal  provision  for  obtaining  cash,  yet  the 
increase  in  instalment  contracts  and  annuities  will 
serve  to  modify  the  possibility  of  very  large  demands 
at  unexpected  times.  But  the  character  of  a  life  insur- 
ance company  is  such  that  not  only  probabilities  but 
also  even  remote  possibilities  must  be  taken  into  con- 
sideration. The  failure  of  a  bank  may  entail  embar- 
rassment and  even  suffering,  but  for  a  life  insurance 
company  to  be  unable  to  meet  its  obligations  is  a 
disaster  of  a  vastly  more  serious  character.  Distress- 
ing as  it  frequently  is  to  be  deprived  of  money  laid 
aside  for  a  time  of  need,  the  loss  of  a  life  policy  upon 
which  dependents  have  relied,  when  it  can  no  longer 
be  replaced,  is  a  far  greater  calamity. 

While  the  lives  which  are  admitted  to  member- 
ship are  sound  at  the  outset,  and  many  of  them  con- 
tinue so  for  long  periods,  some  of  them  become  im- 
paired by  sickness  or  disease  and  will  not  be  taken  by 
any  life  insurance  company  on  any  terms.  The  fail- 
ure of  such  a  company  will,  therefore,  inflict  a  damage 
not  only  to  the  extent  of  the  actual  loss  of  reserves, 
but  in  many  cases  a  far  greater  one.  It  is  clear,  there- 
fore, that  the  accumulations  of  a  life  insurance  com- 
pany are  of  the  most  sacred  character  and  that  they 


102  LECTURES  ON  LIFE  INSURANCE 

should  be  guarded  against  loss  with  the  utmost  care 
and  skill. 

In  investing  these  moneys,  therefore,  two  points 
must  be  borne  in  mind:  First,  that  no  possible  risk 
which  can  be  avoided  should  be  incurred,  and  second, 
that  the  rate  of  interest  which  will  be  secured  will 
certainly  be  somewhat  larger  than  that  assumed  in  cal- 
culating the  liabilities.  In  view  of  the  character  of 
these  obligations,  it  is  proper  and  safe  to  invest  a 
somewhat  larger  proportion  of  the  total  accumulations 
in  these  securities  which,  while  good  in  themselves, 
bear  a  higher  rate  of  interest  but  are  not  as  easily  con- 
verted into  cash  as  other  properties  like  well-known 
stocks  and  bonds. 

The  investor  of  life  insurance  funds  must,  there- 
fore, have  constantly  before  him  two  definite  neces- 
sities— safety  and  the  rate  of  interest.  He  must  not 
sacrifice  safety  for  a  high  rate  of  interest,  nor  can  he 
confine  himself  to  those  securities  which  by  reason  of 
their  availability  are  sought  for  by  a  different  class  of 
investors  and  therefore  sell  at  prices  which  produce  but 
a  small  return.  He  must  not  only  have  a  thorough 
knowledge  of  the  laws  and  history  of  financial  affairs, 
but  he  must  also  understand  the  nature  of  the  liabil- 
ities which  are  undertaken  in  policy  contracts  in  gen- 
eral, and  those  of  the  particular  institution  whose  funds 
he  is  handling. 

In  view  of  the  sacred  character  of  the  funds 
held  by  life  insurance  companies,  the  state  of  Con- 
necticut has  properly  passed  laws  restricting  these 
investments  in  certain  ways  and  imposing  certain 
duties  upon  those  having  control  of  them.  The  laws 
of  this  state  affecting  these  matters  are  as  follows : — 

Sec.  3562.  Investments  by  life  insurance  com- 
panies. No  loan  or  investment  shall  be  made  by  a 
life  insurance  company  of  this  state  without  the  unani- 
mous approval  of  its  finance  or  executive  committee, 
or  the  approval  of  a  majority  of  the  directors  of  such 
company  present  at  a  meeting  of  such  directors,  and 
the  name  of  every  director  approving  or  disapproving 
any  loan  or  investment  so  made  shall  be  entered  by  the 
secretary  on  the  records  of  the  company. 


LECTURES  ON  LIFE  INSURANCE  103 

Sec.  3563.  Officers  to  receive  no  compensation 
for  negotiating  loan.  No  director  or  officer  of  a  life 
insurance  company  shall  receive  any  money  or  valu- 
able thing  for  negotiating,  procuring,  or  recommending 
any  loan  from  such  company,  or  for  selling  or  aiding  in 
the  sale  of  any  stocks  or  securities  to  or  by  such  com- 
pany. 

Sec.  3564.  Loans  of  life  insurance  companies 
regulated.  No  loan  shall  be  made  of  the  capital,  assets, 
or  income,  or  any  portion  thereof,  of  any  life  insurance 
company  incorporated  by  or  organized  under  the  laws 
of  this  state,  unless  such  loan  shall  be  secured  by  mort- 
gage of  unencumbered  real  estate  worth  at  least  double 
the  amount  loaned  thereon ;  or  by  pledge  of  bonds  or 
stocks  as  collateral  having  a  market  value  at  least  ten 
per  centum  in  excess  of  the  amount  loaned  thereon ; 
or  by  pledge  of  United  States  government  bonds  or 
bonds  of  the  state  of  Connecticut  the  market  value 
of  which  shall  be  equal  to  the  loan;  and  any  such 
company  may  make  loans  on  pledge  of  policies  issued 
by  it  to  an  amount  not  exceeding  the  net  reserve  which 
it  maintains  upon  the  policy  or  policies  pledged  to 
secure  each  such  loan. 

Sec.  3565.  Loans  and  Investments  regulated. 
No  portion  of  the  capital,  assets,  or  income,  of  any 
life  insurance  company  of  this  state  shall  be  used  in 
the  purchase  of  the  stocks  or  bonds  of  any  mining  or 
manufacturing  company  in  any  event,  nor  in  the 
purchase  of  the  stocks  or  bonds  of  any  other  private 
corporation,  upon  which  last-mentioned  stocks  a  regu- 
lar dividend  shall  have  been  passed,  or  upon  which 
last-mentioned  bonds  a  regular  interest  payment  shall 
have  been  defaulted  at  any  time  within  three  years 
prior  to  such  investment ;  and  no  loan  shall  be  made  by 
any  such  company  upon  the  security  of  the  stock  of 
any  mining  company.  No  loan  shall  be  made  by  any 
such  company  upon  the  security  of  the  stock  of  any 
manufacturing  company  whereof  the  market  value  is 
less  than  the  par  value  unless  the  same  shall  be  accom- 
panied by  the  individual  guaranty  of  some  responsible 
party,  or  by  other  collateral  security  of  equal  value  to 
the  amount  of  the  sum  loaned ;  and  in  no  case  shall 


104  LECTURES  ON  LIFE  INSURANCE 

the  amount  loaned  exceed  fifty  per  cent,  of  the  market 
value  of  said  stock. 

Sec.  3566.  Premium  Notes.  This  chapter  shall 
not  prevent  any  company  from  taking  premium  notes, 
or  giving  credit  for  part  of  its  premiums,  in  accord- 
ance with  its  usual  course  of  business. 

Sec.  3567.  Penalty  for  authorizing  illegal  invest- 
ments. Every  officer  or  director  of  a  life  insurance 
company  consenting  to  a  loan  or  investment  in  wilful 
violation  of  any  provision  of  Sees.  3562,  3563,  3564,  or 
3565  shall  be  personally  liable  to  the  company  for  any 
loss  which  may  be  sustained  by  such  investment,  or 
loan,  to  be  recovered  in  an  action  brought  by  the  insur- 
ance commissioner  on  complaint  of  any  policyholder 
or  stockholder  in  the  company  suffering  thereby,  and 
shall  be  fined  not  more  than  one  thousand  dollars  and 
imprisoned  not  more  than  five  years. 

It  may  now  very  properly  be  asked  whether  this 
Company  conducts  its  financial  department  in  accord- 
ance with  these  laws  and  what  results  have  been  accom- 
plished. 

The  largest  item  of  assets  is  that  of  mortgages 
on  real  estate.  The  interest  receipts  on  this  item, 
although  the  rate  has  been  diminishing  for  many  years, 
have  never  been  as  low  as  5  per  cent,  upon  the  amount 
outstanding.  These  loans  number  about  8,000  and  but 
one  foreclosure  has  been  necessary  in  the  past  three 
years. 

The  real  estate  owned  by  the  Company,  includ- 
ing its  Home  Office  building,  amounted  on  the  first  of 
January  to  about  $640,000.  Since  then,  sales  of  $50,- 
000  have  been  made.  A  careful  appraisal  was  made 
within  the  past  year  of  the  various  pieces  and  book 
values  were  adjusted  accordingly. 

A  list  of  stocks  and  bonds  has  already  been  pub- 
lished and  it  is  sufficient  to  say  that  the  market  value 
placed  upon  these  in  the  Company's  statement  exceeds 
the  cost  by  about  $200,000.  Another  appraisal  of  these 
items  exceeds  the  Company's  estimates  by  more  than 
$50,000.  The  liabilities  are  calculated  at  different 
rates  of  interest,  the  old  business  at  4  per  cent,  and 
the  new  at  3  per  cent.     Taken  as  a  whole,  the  inter- 


LECTURES  ON  LIFE  INSURANCE  105 

est  requirement  is  about  3.75  per  cent.  The  interest 
receipts  of  the  Company  last  year  amounted  to  5  per 
cent,  on  its  reserve,  so  that  there  is  a  safe  margin,  in 
fact  over  and  above  that  adopted  in  calculating  the 
liabilities.  This  is  an  added  source  of  strength  which 
does  not  appear  in  any  statement  of  surplus. 

The  Company  keeps  two  bank  accounts,  one  in 
Hartford  and  one  in  New  York,  and  interest  is  received 
in  both  on  daily  balances.  Both  in  safety  and  produc- 
tiveness the  assets  of  this  Company  .will  compare  favor- 
ably with  those  of  any  other  similar  institution,  and  this 
feature  of  the  business  will  be  more  and  more  appre- 
ciated as  the  public  become  better  and  better  educated 
as  to  what  life  insurance  means. 


LETTER  TO  INQUIRING  POLICYHOLDER 


THE  QUERY 

(copy) 

Phoenix  Mutual  Life  Insurance  Co., 
Hartford,  Conn. 

Gentlemen  : — I  have  for  some  years  been  paying 
a  considerable  sum  annually  to  your  Company  for 
premiums  on  a  policy  of  insurance.  So  far  as  I  am 
able  to  judge  from  your  reports,  this  policy  is  well 
secured,  and  the  cost  has  been  no  more  than  I  ex- 
pected it  would  be  from  statements  made  to  me  by 
your  agent  when  he  took  my  application. 

In  view  of  the  considerable  interest,  however, 
which  I  have  in  the  Company,  and  of  the  further  fact 
that  in  consequence  of  my  large  business  and  increased 
obligations  I  am  planning  to  add  to  my  life  insurance, 
I  am  desirous  of  learning  something  about  your  insti- 
tution -which  I  cannot  find  out  from  the  printed  re- 
ports. 

The  general  subject  of  life  insurance  is  attract- 
ing much  attention,  and  thoughtful  people  are  asking 
as  to  the  policy  of  the  institutions  in  which  they  have 
taken  their  insurance  or  plan  to  entrust  the  protec- 
tion of  their  families  or  their  creditors.  May  I  ask, 
therefore,  in  a  general  way  what  are  the  principles 
which  the  managers  of  your  Company  have  in  view 
in  conducting  its  business? 

Very  truly  yours, 


THE  ANSWER 

Hartford,  Conn., 
Dear  Sir: — We  beg  to  acknowledge  the  receipt 

of  your  communication  of  which  has  been 

read  with  very  great  interest  and  satisfaction,  for  we 
are  glad  of  every  evidence  which  comes  to  us  that 


LECTURES  ON  LIFE  INSURANCE  107 

our  members  desire  information  not  only  as  to  the 
condition  of  the  Company,  but  as  to  the  general  prin- 
ciples which  the  managers  of  the  institution  have  in 
view  in  conducting  its  business. 

At  the  risk  of  giving  you  information  as  to  some 
things  which  you  know  already,  or  in  which  you  are 
not  interested,  we  will  endeavor  to  as  briefly  as  pos- 
sible explain  to  you  the  policy  of  this  Company. 

The  Company  was  organized  and  commenced 
business  in  1851  under  a  perpetual  charter  granted 
by  the  State  of  Connecticut.  Its  experience,  therefore, 
covers  more  than  half  a  century,  during  which  this 
country  has  passed  through  periods  of  health  and  sick- 
ness and  of  prosperity  and  adversity.  The  Com- 
pany is,  therefore,  no  longer  an  experiment,  but  an 
established  institution  with  an  experience  in  its  vari- 
ous branches  which  enables  it  to  conduct  its  business 
on  sound  principles. 

Its  Members  are  selected  from  the  best  class  of 
the  residents  of  the  healthful  portions  of  the  United 
States,  and  are  in  much  the  same  condition  so  far  as 
their  prospects  of  longevity  are  concerned.  The  Com- 
pany's business  is  based  upon  a  table  of  mortality 
which  shows  a  death  rate  considerably  higher  than 
that  experienced  by  the  Company  during  the  entire 
period  of  its  history.  There  is  no  fear,  therefore,  that 
any  embarrassment  will  be  felt  from  any  excessive 
mortality. 

The  Rates  it  charges  for  insurance  are  somewhat 
larger  than  the  calculations  provide  for  as  probably 
necessary,  but  as  life  insurance  is  the  most  sacred  of 
all  trusts,  so  it  should  be  guarded  against  all  possi- 
bilities which  may  arise  in  the  distant  future.  Sur- 
plus receipts  are  returned  to  policyholders  in  various 
forms,  so  that  they  actually  receive  their  insurance 
at  cost. 

The  Rate  of  Interest  adopted  in  making  its  calcu- 
lations is  3%,  but  its  investments  yield  a  considerably 
larger  percentage  than  this,  which  surplus  is  returned 
in  such  ways  as  may  be  chosen  by  its  members.  The 
annual  statement  indicates  the  class  of  securities  in 
which  the  funds  of  the  Company  are  invested.    It  may 


108  LECTURES  ON  LIFE  INSURANCE 

not  be  improper  to  add  that  an  experience  of  many 
years  has  shown  that  loans  on  real  estate,  if  honestly 
and  intelligently  placed,  are  among  the  safest  of  all 
investments,  and  have  up  to  this  time  yielded  a  higher 
rate  of  interest  than  almost  any  other  security.  It 
is  for  this  reason  that  this  item  is  the  largest  of  the 
Company's  assets. 

It  is  not  the  policy  of  the  managers  to  secure 
rapid  growth,  for  this  is  generally  accompanied  by  a 
considerable  waste,  and  is  not  believed  to  produce  the 
most  favorable  results  either  as  to  the  quality  or  the 
strength  of  its  membership. 

The  Company  is  a  purely  mutual  one,  conducted 
solely  for  the  benefit  of  its  members.  Such  gains  as 
have  been  secured  in  any  directions  are  placed  to  the 
credit  of  its  members  in  an  equitable  apportionment. 
Its  officers  and  other  employees  have  no  direct  or  in- 
direct interest  in  the  profits  of  its  business  or  its  in- 
vestments, except  the  sais faction  which  they  feel  in 
the  success  of  their  efforts. 

It  is  not  practicable  in  the  limits  of  an  ordinary 
letter  to  give  the  detailed  history  of  the  Company,  or 
of  all  the  circumstances  of  its  condition  and  prospects, 
but  it  is  our  pleasure,  as  it  certainly  is  our  duty,  to 
give  all  proper  information  to  our  members  or  to  those 
who  are  seeking  legitimate  insurance.    • 

Our  annual  report  shows  the  receipts  and  dis- 
bursements for  1904,  its  assets  and  liabilities,  a  list  in 
detail  of  stocks  and  bonds,  and  other  information 
which  will  enable  anyone  interested  to  judge  quite 
accurately  of  the  condition  of  the  institution  and  the 
way  in  which  it  is  performing  its  duties. 
Very  truly  yours, 

John  M.  Holcombe, 

President  Phoenix  Mutual 
Life  Insurance  Company 


DETAILS  OF  A  GEEAT  BUSINESS 


(Delivered  before  the  General  Managers'  Association) 


\\TE  are  here  to  discuss  some  of  the  details  of  a 
great  business  —  one  which  involves  not  only 
our  individual  interests,  but  also  the  welfare  of  the 
people  and  even  of  the  nation  itself. 

A  distinguished  writer  has  said  that  the  family 
"must  be  considered  as  the  crucial  social  unit — the 
very  keystone  of  society — for  it  results  from  happy 
association  of  the  sexes  by  which  (the  human  species 
is  perpetuated  and  extended,  by  which  the  affections 
are  developed,  and  by  -which  the  interest  which  com- 
pels one  unit  to  protect,  preserve  and  cherish  another 
is  fostered.  It  should  be  the  purpose  of  society  as  a 
whole  to  protect  the  sacredness  and  integrity  of  that 
relation.  Without  the  family  unit  no  other  social  unit 
would  be  possible.  It  brings  the  individual  out  of  his 
seclusion  into  ethical  relations,  constitutes  him  a  liv- 
ing evolutionary  force,  lifts  him  out  of  intensive 
selfishness  to  a  more  extensive  selfishness,  for  in  the 
family  relation  he  must  live  for  others,  although  in 
living  for  others  he  may  live  for  his  own  higher  enjoy- 
ment. *  *  *  It  is  the  fundamental  unit  of  civil- 
ized society." 

It  is  for  the  good  of  the  morals  of  society  as  well 
as  for  every  other  consideration,  that  the  marriage 
state  should  be  entered  into  early  in  life,  especially 
among  the  intelligent  and  moral  classes  of  society, 
for  thus  not  only  will  the  moral  tone  of  civilization  as 
a  whole  be  maintained  and  elevated,  but  thrift  and  tem- 
perance will  be  increased.  There  are  of  course  some 
who  by  reason  of  inherited  wealth  may  safely  enter 
into  the  responsibilities  of  marriage,  but  by  far  the 
greater  part  of  the  people  can  do  so  only  by  assuming 
risks  which  should  not — or  need  not — be  run.  How- 
ever capable,  industrious  and  thrifty  a  young  man 
may  be,  if  he  is  without  means  marriage  brings  to 


110  LECTURES  ON  LIFE  INSURANCE 

him  certain  obligations  and  burdens,  which  he  cannot 
escape  from  except  through  life  insurance. 

The  institution  was  organized  for  the  purpose  of 
meeting  the  needs  of  such.  It  was  brought  into  exist- 
ence because  civilized  society  recognized  that  progress 
in  the  right  direction  could  not  be  made  without  it. 
It  rests  upon  the  value  of  a  productive  life,  and  pro- 
tects those  who  are  dependent  upon  this  against 
disaster.  By  reason  of  the  ambitions  of  men  and  the 
competition  which  has  arisen,  the  true  purposes  of 
life  insurance  sometimes  have  been  obscured,  but 
the  time  seems  to  be  at  hand  when  the  original  pur- 
poses of  this  institution  will  be  more  clearly  under- 
stood, and  public  opinion  will  force  the  various  cor- 
porations engaged  in  this  business  into  a  position 
where  they  will  base  their  arguments  upon  the  true 
idea  of  protection. 

Not  only  is  our  business  inseparably  connected 
with  the  family  life,  and  in  most  cases  absolutely 
essential  to  contentment  and  happiness,  but  it  also  is 
becoming  more  and  more  a  vital  element  in  the  state 
or  nation.  A  very  large  part  of  the  public  expendi- 
tures is  of  necessity  devoted  to  the  prevention  and 
punishment  of  crime  and  caring  for  those  who  are 
unable  to  take  care  of  themselves.  Jails,  almshouses 
and  orphan  asylums  are  not  filled  with  those  who  hold 
policies  of  life  insurance,  or  who  have  been  the  bene- 
ficiaries of  this  greatest  of  all  philanthropies,  and  you 
may  be  sure  that  as  you  educate  the  public  and  insure 
their  lives,  you  are  at  the  same  time  diminishing  the 
public  expenses  and  elevating  the  moral  tone  of  the 
whole  people. 

It  is  not  possible  to  conceive  of  an  occupation 
more  elevating  than  that  in  which  you  are  engaged. 
You  have  constantly  to  consider  and  to  discuss  the 
best  instincts  of  the  human  race. 

Our  business  is,  therefore,  by  its  nature  a  sacred 
trust.  There  are  accumulations  of  money  which  must 
be  safely  invested  at  interest  to  provide  for  future 
claims,  some  of  which  will  not  be  presented  for  many 
years.  These  funds  are  guarded  by  statute  as  well 
as  by  moral  laws,  and  are  so  peculiarly  important  in 


LECTURES   ON  LIFE  INSURANCE  111 

themselves  as  to  demand  the  greatest  honesty  and 
intelligence  m  their  investment.  The  moneys  and 
property  of  a  living  man  are  under  his  own  control, 
but  that  fund  which  he  contributes  during  his  lifetime 
to  be  cared  for  by  others  and  to  be  paid  out  only  after 
his  death  is  by  far  the  most  sacred  trust  in  business 
life.  Therefore,  the  investment  department  of  a  life 
insurance  company  is  an  exceedingly  important  one, 
and  should  be  in  charge  of  men  of  the  highest  charac- 
ter and  ability. 

But  character  is  no  more  important  in  that  depart- 
ment than  in  the  branch  of  its  operations  which 
includes  its  agency  force.  If  the  money  which  you 
send  to  the  Home  Office  for  investment  to  make  good 
the  liabilities  of  the  Company  should  be  applied  only 
for  the  benefit  of  the  policyholders,  it  certainly  is 
clear  that  your  dealing  with  the  men  who  furnish  this 
money  should  be  quite  as  fair  and  upright.  A  life 
insurance  company  cannot  be  divided  into  several 
parts,  some  of  which  should  be  conducted  with 
scrupulous  honesty  and  others  without  a  due  regard 
to  the  same  principles.  Its  mathematical,  medical  and 
agency  departments  are  no  less  bound  by  the  rules  of 
good  morals  than  is  the  investment  department. 

It  .will  be  a  good  thing  for  the  institution  to  add 
to  its  membership,  but  no  such  addition  will  be  of  last- 
ing value  unless  it  be  made  in  such  a  way  that  the 
members  shall  know  what  they  are  getting,  and,  there- 
fore, that  they  shall  be  satisfied  with  their  contracts. 


HOW  SHALL  LIFE  INSURANCE 
OCCUPY  ITS  RIGHTFUL  PLACE  ? 


(Delivered  before  Boston  Life  Underwriters'  Association) 


ET  us  try  to  imagine  what  this  world  of  ours 
would  be  without  life  insurance.  For  many 
centuries  before  the  system  was  ever  formed  or 
even  thought  of,  the  human  race  was  increasing  in 
numbers,  tilling  the  soil,  building  houses,  construct- 
ing ships  which  led  to  the  discovery  and  populating 
of  one  country  after  another,  erecting  splendid 
cities  and  forming  governments  which  nourished 
and  decayed,  leaving  examples  of  the  law  that 
nothing  endures  unless  it  has  for  its  foundation 
virtue,   intelligence  and  industry. 

Running  through  all  the  early  history  of  the 
world  there  were,  however,  unmistakable  evidences 
that  superstition,  cruelty  and  selfishness  were  the 
controlling  influences  in  human  affairs.  To  these 
qualities  must  be  attributed  the  cheapness  at  which 
life  was  held,  the  ruthless  destruction  of  fair  cities 
whose  buildings  cost  vast  treasure  and  labor,  and 
the  corruption  and  final  downfall  of  governments 
which  have  never  been  better  than  the  individuals 
by  whom  they  are  made. 

Life  insurance  was  for  all  practical  considera- 
tions developed  in  the  latter  half  of  the  nineteenth 
century.  Long  before  that  it  had  existed  in  one 
shape  or  another,  and  had  even  been  reduced  to  a 
practical  and  scientific  basis,  but  it  had  not  be- 
come a  great  force  in  the  sum  total  of  human  affairs. 
It  was  during  this  same  fifty  years  that  the  civilized 
world  made  greater  progress  than  ever  before  and 
very  likely  greater  than  will  ever  again  be  made 
in  any  other  half  century.  There  came  during  that 
time  a  more  thorough  investigation  of  the  world  and 
its  dwellers  than  ever  before.  The  physical  and 
mental  qualities  of  men  and  women,  the  history  of 
governments,  the  relations  between  different  peoples 


LECTURES  ON  LIFE  INSURANCE  113 

and  the  effects  of  climates,  were  all  subjects  of  ex- 
amination, thought  and  discussion.  All  things  were 
considered  more  broadly,  and  thoughtful  people 
realized  more  clearly  that  the  interest  of  the  individ- 
ual must  often  give  way  to  that  of  the  community. 
Human  slavery  was  recognized  as  an  offense  against 
all  right  principles,  the  value  of  life  was  more 
and  more  realized  and  acknowledged  in  efforts  to 
substitute  arbitration  for  war,  and  to  lengthen  and 
thus  increase  the  lives  of  the  people  by  greater 
attention  to  methods  of  living. 

What   part   life   insurance   played   in   this   tre- 
mendous growth  and  development,  it  would  be  diffi- 
cult to  estimate  and  impossible  to  prove.     No  doubt, 
the  growth  of  the  institution  has  been  very  largely 
due  to  advance  in  intelligence  and  to  the  result  of 
thought,  and  on  the  other  hand,  it  is  equally  clear 
that  the  business  has  had  a  very  marked  influence 
in  the  progress  of  the  best  qualities  of  civilization. 
Life  insurance  is   a  business  enterprise.     It  is  not 
philanthropy,  but  it  appeals  more  than  any  other 
commercial  institution  to  the  best  qualities  of  hu- 
man nature.     There   are   certain  records  which  we 
can   study   to   advantage   in  this   connection.     The 
aggregate  amount  of  money  which  has  been  paid  to 
life  insurance  corporations  and  associations  cannot 
be  even  approximately  stated,  but  we  have  records 
which  indicate  the  great  place  that  this  business  has 
come  to  occupy.  In  a  period  of  thirty  years  from  1877, 
twenty-eight  companies  of  the  United  States  received 
in  premiums,  $4,888,000,000,  and  during  the  same 
time  they  paid  to  their  policyholders,  $3,094,000,000, 
and  had  at  the  end  of  this  period,  property  to  pro- 
vide for  the  payment  of  outstanding  policy  obliga- 
tions   amounting    to    $2,453,000,000.     While    these 
figures  are  very  impressive,  they  form  but  a  small 
portion  of  the  total  amount  paid  to  life  insurance 
corporations   and   associations   in   various   countries 
since  the  business  was  first  inaugurated. 

Where    have   these    premiums    come   from,    for 

what  were  they  paid,  and  what  has  become  of  them? 

It  may  fairly  be  answered  that  the  greater  part 

represented   amounts   saved   by   those   in   moderate 


114  LECTURES  ON  LIFE  INSURANCE 

circumstances  and  parted  with  for  the  protection  of 
dependents.  Had  they  not  been  used  in  this  way, 
it  is  likely  that  much  of  this  great  sum  would  have 
been  wasted  or  spent  to  the  injury  of  the  health 
and  morals  of  those  who  earned  it.  It  represented 
toil  and  an  acknowledgment  of  the  obligations  of 
those  who  are  strong  to  those  who  are  weak.  The 
amounts  disbursed  saved  many  helpless  ones  from 
want,  protected  many  from  temptation  and  aided 
others  in  innumerable  ways  when  no  other  help 
could  have  been  obtained. 

The  accumulations  of  those  companies 'in  all 
these  years  have  been  invested  in  various  ways ; 
have  been  used  to  cultivate  farms,  to  build  cities, 
railroads,  and  in  general  to  develop  the  country,  and 
in  many  cases  to  relieve  the  necessities  of  those 
policyholders  who  without  the  security  of  their  in- 
surances could  not  have  obtained  money  at  times 
when  it  was  greatly  needed. 

But  beyond  all  this,  the  sentiment  which  prompt- 
ed these  payments  should  be  considered  as  an  ele- 
ment in  the  world's  progress.  The  man  who  pays 
a  life  insurance  premium  for  the  purpose  of  protect- 
ing those  dependent  upon  him,  is  a  more  valuable 
citizen  on  account  of  the  thought  which  has  inspired 
this  action.  He  is  better  fitted  to  cast  his  vote  wise- 
ly and  to  occupy  public  office.  His  relations  with 
his  fellowmen  are  marked  by  more  lofty  impulses; 
he  has  overcome  a  part  of  the  natural  selfishness 
which  impedes  progress  and  weakens  public  stability. 

It  is  not  possible  to  imagine  any  other  kind  of 
a  corporation  engaged  in  as  useful  a  business  and 
one  as  valuable  to  the  cause  of  civilization  as  a  well 
managed  life  insurance  company.  Not  only  does 
it  gather  the  contributions  of  the  many  to  lighten 
the  disasters  of  the  few,  but  it  relieves  the  public 
treasury  from  a  part  of  the  expense  entailed  by 
crime,  indolence  and  misfortune,  and  it  makes  better 
citizens.  It  is  reasonable  to  believe  that  had  there 
been  no  life  insurance  up  to  the  present  time,  there 
would  now  be  a  far  greater  number  of  almshouses  and 
asylums  where  the  unfortunate  must  be  cared  for  by 
the  public,  that  crimes  of  various  kinds  would  be 


LECTURES  ON  LIFE  INSURANCE  115 

much  more  numerous,  and  therefore  the  expense 
of  guarding  against  them  would  be  far  greater  than 
it  is  now. 

Let  us  suppose,  if  we  can,  that  no  life  insurance 
organization  had  ever  before  been  in  operation;  that 
certain  men  of  well  known  intelligence  and  integrity- 
had  investigated  the  law  of  mortality  and  had  formed 
a  corporation  to  do  that  which  is  now  being  done 
by  each  of  many  companies  engaged  in  this  business. 
Having  thoroughly  investigated  the  death  rate 
among  different  classes  of  people,  and  in  different 
localities,  it  is  assumed  that  suitable  rates  have  been 
fixed,  and  the  company  has  been  organized  and 
equipped.  However  attractive  this  scheme  might 
be  to  thoughtful  people,  it  has  been  realized  that 
to  conduct  an  equitable  and  safe  business  of  any 
proportions,  it  is  necessary  to  employ  agents,  not 
only  to  explain  the  system  to  those  near  the  home 
office  as  well  as  to  others  living  at  distant  points, 
but  also  to  guard  the  company  against  the  danger 
of  admitting  to  membership  those  whose  prospects 
of  longevity  are  less  than  the  classes  from  whose 
records  the  rates  were  derived.  Reliable  averages 
and  reasonable  expenses  can  only  be  secured  by 
considerable  business,  and  the  steady  progress  which 
is  desirable  can  best  be  obtained  by  drawing  members 
from  different  localities. 

If  we  can  imagine  such  a  condition  of  things, 
then  let  us  try  to  conjecture  how  such  a  plan  would 
appeal  to  the  public!  It  seems  clear  that  its  success 
would  be  immediate;  that  an  agent  would  find  ready 
listeners;  that  he  would  be  cordially  received  and 
that  his  position  would  be  regarded  as  dignified  and 
honorable  in  the  highest  degree.  I  do  not  think, 
moreover,  that  we  here  will  differ  in  the  opinion 
that  at  a  moderate  commission  solicitors  for  this 
institution  would  be  able  to  make  a  satisfactory 
income,  and  that  the  character  of  the  business  would 
appeal  to  men  of  the  highest  intelligence  and  stand- 
ing. If  the  reasoning  up  to  this  point  is  sound,  and 
if  a  good  many  who  have  heretofore  been  engaged 
in  this  business  have  left  it  for  something  in  which 
they  could  more  easily  make  a  living,  and  if  there 


116  LECTURES  ON  LIFE  INSURANCE 

is  difficulty  in  interesting  new  men  of  high  character 
in  the  personal  soliciting  of  life  insurance,  then  it 
must  be  due  to  one  of  two  causes:  either  the  business 
has  been  over  done,  or  else  there  have  been  some 
things  in  the  conduct  of  life  insurance  which  have 
created  a  false  impression  and  prejudice  in  the  minds 
of  the  people.  It  is  perfectly  safe  to  say  that  life 
insurance  has  not  been  overdone;  that  many  times 
the  total  amount  now  in  force  in  all  life  insurance 
companies  ought  to  be  carried  by  the  people  of  this 
country ;  that  many  who  have  no  life  insurance  ought 
to  have  some,  and  that  most  of  those  who  carry  it 
ought  to  have  more.  I  am  very  firmly  of  the  opinion 
that  this  whole  question  in  which  we  are  all  so  deeply 
interested  at  this  time  is  narrowed  down  to  one  thing: 
that  there  have  been  and  still  are  practices  in  the 
conduct  of  this  great  and  good  business  which  have 
created  prejudices  against  it,  not  only  in  the  minds 
of  those  who  are  glad  to  contemplate  the  faults  of 
humanity  rather  than  its  good  qualities,  but  even  in 
the  estimation  of  those  who  mean  to  be  fair-minded 
and  just. 

Life  insurance  exists  for  the  purpose  of  making 
good  or  modifying  the  loss  occasioned  by  the  ter- 
mination of  a  valuable  life.  It  is  true  that  it  is  also 
very  properly  used  as  a  means  of  saving  and  to  pro- 
vide for  the  needs  of  old  age,  yet  it  is  not  banking, 
and  no  legitimate  policy  that  ever  was  or  will  be 
issued  can  properly  be  considered  as  a  pure  invest- 
ment. In  the  strife  caused  by  the  ambition  to  ac- 
cumulate assets,  the  companies  have  urged  the  idea 
that  the  investment  feature  should  be  made  the 
chief  argument,  and  have  minimized  the  insurance 
element  until  it  has  been  represented  to  be  of  little 
or  no  account.  No  life  insurance  company  ever 
did  or  ever  will  issue  an  endowment  policy  which 
could  fairly  be  claimed  to  be  a  good  investment, 
aside  from  the  risk  which  was  carried.  No  tontine 
or  deferred  dividend  policy  was  ever  written  which 
could  fairly  be  claimed  to  be  a  good  financial  opera- 
tion, taking  into  account  not  only  the  mortality  risk, 
but  the  hazard  of  losing  a  part  or  the  whole  of  what 
has  been  paid  in.     If  our  business  is  ever  to  occupy 


LECTURES  ON  LIFE  INSURANCE  117 

that  place  to  which  it  is  entitled,  it  will  be  on  the 
merits  of  life  insurance,  and  the  protection  it  affords 
in  the  case  of  premature  death,  and  not  because  its 
policies  are  taken  with  the  expectation  that  the 
money  paid  in  will  be  returned  with  a  good  rate  of 
interest  and  the  life  insurance  feature  thrown  in. 
Many  have  been  led  to  believe  that  life  insurance 
is  an  investment  or  speculation.  When  these  have 
been  undeceived,  it  is  not  surprising  that  they  should 
come  to  the  conclusion  that  a  part  of  their  money 
has  been  wasted  in  extravagance  or  has  been  used 
for  the  personal  advantage  of  those  who  have  had 
the  care  of  it.  Nor  is  it  to  be  wondered  at  that  legis- 
lators have  believed  that  corporations  engaged  in 
such  a  business  should  bear  a  large  part  of  the  ex- 
pense of  running  the  various  governments. 

But  the  people  are  becoming  educated,  and  are 
getting  a  clearer  view  year  by  year.  In  this  educa- 
tion lies  our  future  prosperity  and  our  safety,  and 
especially  our  hope  that  the  burdens  of  taxation  will 
not  only  not  be  increased,  but  will  in  time  be  equal- 
ized and  lightened. 

The  question  which  I  believe  to  be  of  the  great- 
est importance  at  this  time  is,  what  is  legitimate 
competition?  I  believe  that  the  great  majority  of 
the  substantial  life  insurance  companies  of  this  coun- 
try are  in  better  condition  now  than  they  ever  were 
before ;  that  they  are  better  entitled  to  the  confidence 
of  the  public,  and  that  the  results  they  can  produce 
will  be  more  satisfactory  than  they  have  ever  been 
in  the  past.  It  is  clear  to  me  that  thoughtful  men 
will  more  and  more  come  to  this  opinion,  but  I  am 
equally  clear  that  the  business  will  not  reach  that 
standing  which  it  should  acquire  until  those  who  are 
seeking  to  secure  applications  shall  try  to  build  up 
the  public  confidence  instead  of  pulling  it  down,  by 
confining  their  arguments  to  the  merits  of  legitimate 
life  insurance,  and  shall  cease  to  claim,  and  try  to 
prove  that  one  company  is  better  in  every  respect 
than  all  others;  and  shall  seek  new  subjects  instead 
of  attempting  to  disturb  present  relations;  and  shall 
refrain  from  unjustly  criticising,  even  by  implication 
and  innuendo,  the  acts  and  motives  of  others.     I 


118  LECTURES  ON  LIFE  INSURANCE 

do  not  mean  to  be  understood  as  objecting  to  fair 
comparisons  and  proper  arguments,  but  the  agent 
who  openly  claims  that  his  own  company  is  not  only 
in  all  respects  the  best,  but  is  practically  the  one  in 
which  everybody  should  insure,  is  doing  as  great  a 
damage  to  the  institution  of  life  insurance  as  any 
disclosures  of  improper  conduct  have  ever  inflicted 
upon  it. 


WHAT  IS  NECESSARY  FOR  THE  ORGANIZA- 
TION AND  SUCCESS  OF  A  NEW 
LIFE  INSURANCE  COMPANY  ? 


(Delivered  before  the  General  Managers'  Association) 


A  BILITY,  intelligence,  experience  and  honesty  are 
essential  to  the  lasting  success  of  any  human 
enterprise,  and  it  may  fairly  be  said  that  a  life  insur- 
ance company  cannot  be  started,  nor  indeed  can  it 
be  successfully  conducted  at  any  stage  of  its  history, 
without  a  combination  of  these  qualities.  In  all  other 
lines  of  business,  transactions  cover  but  a  compara- 
tively brief  time.  A  merchant  buys  at  one  price  with 
the  expectation  of  selling  at  a  sufficiently  higher  price 
to  cover  his  expenses  and  yield  him  a  profit.  A 
manufacturer  gathers  material,  employs  labor  and 
produces  that  which  he  expects  to  dispose  of  at  a 
gain  over  and  above  the  total  cost  of  production.  His , 
problem  is  a  somewhat  more  complicated  one  often- 
times than  is  that  of  the  merchant,  for  he  has  to  deal 
with  many  uncertain  and  fluctuating  elements;  but 
in  either  case  when  the  sale  is  completed  the  trans- 
action is  closed. 

A  savings  bank  receives  money,  agreeing  to  pay 
it  back  at  any  time  it  may  be  called  for.  A  fire  in- 
surance company  fixes  in  advance  a  rate  with  the 
expectation  that  it  will  be  larger  than  the  losses  and 
expenses.  If  it  is  found  that  the  general  rates  are 
not  high  enough  or  that  particular  risks  have  in- 
creased policies  can  be  canceled  at  any  time  and 
risks  terminated;  and  thus  rates  can  be  adjusted 
according  to  the  conditions  which  may  be  found  to 
exist  from  time  to  time. 

It  would  be  quite  possible  to  liquidate  the  affairs 
of  any  ordinary  mercantile  concern  or  financial  in- 
stitution without  prejudice  to  the  interests  of  its 
creditors,  because  its  debts  are  definite  and  easily 
ascertainable. 


120  LECTURES  ON  LIFE  INSURANCE 

But  a  life  insurance  company  has  to  do  not  alone 
with  the  present  but  with  the  distant  future.  A 
rate  must  be  fixed  at  the  outset  which  it  is  agreed  will 
be  accepted  for  many  years  to  come,  and  if  for  any 
reason  it  shall  prove  insufficient  there  is  no  way  in 
which  a  corporation  undertaking  such  an  obligation 
can  save  itself  from  loss.  It  cannot  increase  the  rate 
and  it  cannot  cancel  the  policy,  while  the  insured  has 
the  privilege  at  any  time  of  discontinuing  his  part  of 
the  agreement.  This  rate  is  based  upon  a  mortality 
table  and  rate  of  interest,  and  it  must  be  sufficient  to 
cover  policy  claims  and  expenses  in  the  near  and  dis- 
tant future.  Risks  must  be  selected  with  such  care 
that  the  death  rate  will  come  within  the  tabular  mor- 
tality, and  also  do  equity  between  the  different  mem- 
bers. That  portion  of  the  premiums  not  needed  for 
current  claims  and  expenses  must  be  set  aside  and 
invested  not  only  safely  but  at  a  rate  of  interest  at 
least  as  large  as  that  assumed. 

It  is  for  these  reasons  that  a  life  insurance  policy 
differs  from  all  other  contracts,  and  it  should  be  en- 
tered into  by  all  parties  concerned  with  a  full  under- 
standing of  its  meaning.  The  company  is  making 
promises  which  should  not  be  undertaken  without 
the  most  careful  study  of  all  the  elements  involved, 
and  a  certainty  of  being  able  to  promptly  meet  not 
alone  death  claims,  but  all  other  obligations  of  cash 
surrender  values,  loans  to  policyholders,  and  expenses 
and  burdens  of  taxation. 

All  these  obligations  have  been  met  in  past  ex- 
perience and  there  are  now  companies  of  such  age 
and  strength  that  no  conceivable  fluctuations  in  hu- 
man affairs  can  impair  their  solidity.  These  com- 
panies all  had  their  beginnings — most  of  them  at  a 
time  when  conditions  were  very  different  from  those 
which  prevail  today. 

It  would  not  be  fair  to  say  that  no  new  life  in- 
surance company  can  be  started  at  this  time  and  car- 
ried to  success,  but  the  obligations  of  a  corporation 
of  this  kind  are  so  peculiar  and  so  sacred,  that  they 
deserve  to  be  considered  with  the  greatest  care. 

Practical  experience  is  of  the  greatest  impor- 
tance in  life  insurance,  and  this  is  required  in  either 


LECTURES  ON  LIFE  INSURANCE  121 

starting  a  new  company  or  managing  an  old  one. 
It  cannot  all  be  learned  from  books,  although  the  his- 
tory of  the  business  is  of  very  great  value. 

Writing  a  large  number  of  policies  may  or  may 
not  be  advantageous.  If  they  are  on  good  lives  and 
can  be  secured  at  an  expense  both  of  office  and  agen- 
cy forces  within  reasonable  limits,  a  company  may 
grow  and  flourish,  but  it  costs  at  the  outset  a  great 
deal  to  establish  an  office,  secure  experienced  and 
competent  men  and  build  up  an  agency  force.  There 
is  no  possible  way  of  avoiding  this,  and  while  an  in- 
vestment of  this  kind  may  in  the  end  prove  satis- 
factory, yet  if  policy  obligations  are  met  fairly,  much 
money  will  inevitably  be  sunk  before  a  solid  founda- 
tion can  be  constructed. 

One  of  the  chief  dangers  which  a  new  company 
honestly  and  intelligently  managed  will  have  to  meet 
is  not  in  doing  too  little  business,  but  in  doing  too 
much.  Devices  for  diminishing  policy  reserves  are 
misleading,  and  in  the  highest  degree  perilous,  for 
sooner  or  later  they  must  be  accounted  for  on  sound 
and  well  known  scientific  principles,  and  if  by  any 
fallacy  they  are  postponed,  the  chances  are  that  they 
will  never  be  met.  A  favorable  death  rate  at  the 
outset  is  desirable,  but  it  may  be  very  deceptive,  for 
death  is  sure  to  come,  and  the  company  which  has 
agreed  to  pay  at  that  time  must  be  prepared  for  it. 
It  is  a  very  serious  matter  for  the  officers  of  a  life  in- 
surance company  to  execute  a  contract  binding  the 
corporation,  with  which  they  are  at  best  only  tem- 
porarily connected,  to  meet  an  obligation  which  may 
not  mature  for  half  a  century,  and  to  make  such  a 
promise  in  consideration  of  the  receipt  of  periodical 
payments,  the  sufficiency  of  which  depends  upon 
mortality,  interest  and  expenses  which  can  only  be 
controlled  by  skill,  economy  and  a  volume  of  busi- 
ness large  enough  to  insure  stable  averages.  The 
officers  of  such  a  company  should  consider  the  true 
meaning  of  a  life  insurance  policy  with  the  greatest 
care,  and  should  reflect  upon  the  present  situation 
and  that  which  is  likely  to  exist  for  many  years  to 
come.  It  is  quite  as  important,  too,  that  a  man  who 
is  providing  for  protection  for  his  dependents  should 


122  LECTURES  ON  LIFE  INSURANCE 

be  very  sure  that  the  company  to  which  he  entrusts 
what  is  oftentimes  hard-earned  money  is  built  upon 
foundations  which  cannot  be  shaken  by  financial 
and  other  disturbances  which  are  sure  to  come  sooner 
or  later.  These  questions  should  not  be  taken 
lightly,  for  they  involve  the  most  serious  of  all 
matters. 

It  is  no  more  possible  to  establish  a  mutual  life 
insurance  company  for  the  benefit  of  its  policyhold- 
ers, or  a  stock  company  for  the  benefit  of  its  stock- 
holders, and  to  secure  immediate  profits,  than  it  is 
to  sow  a  field  with  wheat  and  gather  the  harvest  the 
next  day. 

Life  insurance  is  too  sacred  a  matter  to  be  trifled 
with  either  by  those  who  are  establishing  a  new  com- 
pany or  by  those  who  are  taking  insurance  upon  their 
lives.  An  old  company  naturally  has  certain  ad- 
vantages, but  it  is  not  good  simply  because  it  is  old. 
A  big  company  may  produce  good  results  for  its 
stockholders  or  its  policyholders,  but  it  will  not  do 
these  things  simply  because  it  is  big.  A  new  com- 
pany will  not  fail  of  success  simply  because  it  is  new, 
but  it  will  fail  if  it  makes  promises  impossible  of  per- 
formance, and  departs  from  those  sound  principles 
which  are  absolutely  necessary  for  success. 


AN  UNADMITTED  BUT  REAL  ASSET 


(Delivered  before  the  Life  Underwriters'  Association  of 
Central  Massachusetts) 


THE  service  which  a  life  insurance  company  per- 
forms  is  to  furnish  sound  insurance  at  a  reason- 
able cost.  Every  policy  which  is  put  in  force  carries 
with  it  an  immediate  pecuniary  liability  on  the  part  of 
the  Company  issuing  it.  If  it  is  a  life  insurance  policy 
in  its  simplest  form,  and  the  death  risk  alone  is  carried 
from  year  to  year,  the  company  must  have  a  sufficient 
amouiut  of  money  to  make  sure  that  such  claims  as 
they  mature  will  be  paid.  If  the  policy  is  an  ordinary 
life  or  endowment,  then  not  only  must  the  current 
death  risk  be  sure  to  be  met,  but  a  portion  of  the 
premiums  must  be  reserved  at  interest  to  provide  for 
the  time  when  the  annual  payments  will  not  be  sufficient 
to  meet  the  current  risk,  or  to  establish  a  fund  for  the 
final  liquidation  of  the  policy. 

Assuming  that  the  premiums  charged  by  a  com- 
pany are  sufficient  in  amount  to  meet  the  expenses 
and  the  calculated  liabilities,  two  elements  are  to  be 
considered  in  estimating  financial  strength:  The 
assets  must  bear  a  rate  of  interest  somewhat  higher 
than  the  rate  assumed  in  the  calculations,  and  it  must 
be  certain  that  this  rate  can  be  maintained  during 
such  time  as  any  of  the  company's  obligations  may 
remain  in  force.  It  is,  therefore,  easy  to  conceive  of 
a  company  solvent  in  one  sense,  but  insolvent  in 
another,  as,  for  example,  if  its  assets  should  be  invested 
in  government  bonds,  and  its  liabilities  calculated  at 
4%  or  even  3%.  The  second  element  is  that  of  mor- 
tality. If  this  should  be  favorably  compared  with 
the  table  rates,  it  would  inure  to  the  advantage  of  the 
policy  holders  by  reason  of  savings  from  vitality, 
which  would  add  to  the  company's  strength  and  help 
the  distribution  of  surplus. 

In  order  to  estimate  the  financial  strength  of  a 
company,   we   are   in   the   habit  of  looking   over   its 


124  LECTURES  ON  LIFE  INSURANCE 

annual  statement,  scanning  the  different  items  of  its 
assets,  examining  its  receipts  to  learn  whether  the  rate 
of  interest  which  it  is  receiving  is  sufficient,  observ- 
ing its  mortality  experience  and  examining  its  expense 
account  (to  ascertain  whether  this  is  within  the  mar- 
gins intended  to  provide  for  it.  If  we  find  that  the 
assets  valued  conservatively  exceed  the  liabilities  cal- 
culated liberally,  and  we  find  that  the  interest  account 
is  well  above  the  requirements,  the  mortality  record 
below  the  tabular  rate  and  the  expenses  reasonable, 
we  assume  that  the  company  is  solvent  and  strong. 
Any  surplus  it  may  have  over  and  above  these  require- 
ments adds  to  the  substantial  character  of  the  institu- 
tion. 

The  assets  which  we  see  in  the  statement  consist 
of  mortgage  loans,  stocks  and  bonds,  loans  on  security 
of  the  company's  policies  or  other  collateral,  and  such 
other  items  as  go  to  make  up  the  investments  of  the 
institution,  and  we  compare  the  liabilities  with  the 
sum  of  these,  in  order  to  judge  of  the  company's 
strength. 

But  in  all  these  statements,  there  is  one  item  which 
may  be  of  very  great  value  to  policyholders,  and 
which  may  add  to  the  security  of  their  contracts  and 
returns  of  surplus  quite  as  much  as  any  of  the  other 
tangible  assets. 

Any  life  insurance  company  in  good  standing,  with 
a  well-seleoted  business,  and  well-invested  funds  of 
sufficient  amount  to  cover  its  liabilities,  can  stop  issu- 
ing policies  and  by  prudent  and  economical  manage- 
ment can  carry  its  risks  to  maturity  and  pay  its  last 
claim  out  of  its  funds,  but  it  is  not  this  kind  of  a 
company  which  can  furnish  the  most  satisfactory 
results.  New  business  is  not  only  desirable,  but  it  is 
essential  to  the  most  favorable  experience,  provided  it 
is  well  selected,  honestly  placed  so  that  it  shall  be  per- 
sistent, and  the  members  shall  have  confidence  and 
satisfaction  in  their  contracts,  and  provided  it  shall 
be  procured  at  a  reasonable  cost.  How  can  this  be 
done?  The  time  has  not  yet  arrived  when  the  gen- 
eral public  sufficiently  understands  the  subject  of  life 
insurance  to  make  it  a  common  thing  for  a  man  volun- 


LECTURES  ON  LIFE  INSURANCE  125 

tarily  to  approach  a  life  insurance  company  for  a  policy 
upon  his  life.  Such  is  the  nature  of  the  business  that 
he  must  be  educated  as  to  what  the  institution  can 
do  for  him,  and  then  persuaded  into  doing  that  which 
he  ought  to  do  voluntarily. 

A  company,  therefore,  to  perform  its  best  ser- 
vice must  have  a  corps  of  agents  who  shall  go  about, 
and  having  educated  the  public  as  to  the  functions  of 
life  insurance,  explain  to  them  not  only  what  the  insti- 
tution can  do  for  them,  but  what  his  own  particular 
company  can  perform.  His  work  is  one  of  education, 
and  is  one  in  which  while  he  is  earning  his  own  liv- 
ing he  is  doing  a  service  to  his  fellowmen.  And  he 
is  not  only  doing  this,  but  he  is  also  benefiting  the 
policyholders  of  his  own  company  by  adding  to  their 
number,  broadening  the  basis  of  their  business,  and 
aiding  in  that  growth  which  will  bring  better  returns 
to  all  concerned.  The  best  results  are  produced  by 
a  corps  of  agents  who  are  not  only  harmonious  among 
themselves,  but  between  whom  and  the  home  office 
there  exist  the  most  cordial  feelings  of  confidence  and 
friendship.  A  corps  of  this  kind  is  necessarily  a  mat- 
ter of  growth.  It  takes  years  and  the  expenditure  of 
much  money  to  establish  a  thoroughly  efficient  and 
harmonious  body  of  agents,  but  when  this  is  done, 
the  result  will  justify  the  time,  labor  and  expense. 

My  belief,  therefore,  is  that  to  the  ordinary 
assets  of  a  life  insurance  company,  there  may  be  added 
the  value  of  its  agency  force,  and  that  so  far  as  the 
efficiency  of  the  company  is  concerned,  and  the  results 
which  it  can  give  to  its  policyholders,  this  is  as  truly 
an  asset  as  any  other  item  which  is  set  forth  in  the 
printed  statements. 


THE  PHCENIX  MUTUAL  LIFE  INSURANCE 
COMPANY 

ITS  CONDITION  AND  SOME  THOUGHTS 
ON  COMPETITION 


(Delivered  before  General  Managers'  Association) 


P  HE  condition  of  a  life  insurance  company  is  not 
fully  disclosed  by  the  figures  of  its  annual  state- 
ment. These  are  important  in  indicating  certain 
things,  but  they  do  not  tell  the  whole  story.  It  is 
not  possible  even  to  draw  comparisons  between  differ- 
ent companies  by  inspection  of  the  items  which  are 
set  forth  in  any  reports.  Assets  should  certainly 
be  valued  on  a  conservative  basis,  but  they  must 
also  be  invested  not  only  safely  but  so  as  to  produce 
a  rate  of  interest  in  excess  of  that  assumed  in  the  cal- 
culation of  premiums  and  reserves.  The  property 
of  a  company  might  consist  entirely  of  government 
bonds,  in  which  case,  if  the  calculations  of  the  lia- 
bilities were  based  on  four  per  cent,  or  even  three 
per  cent.,  such  a  company  would  be  practically  in- 
solvent, because  its  interest  account  would  not  keep 
pace  with  the  interest  requirements  of  the  liabilities. 
Even  these  essential  points  are  not  altogether  shown 
in  annual  statements,  because  in  some  cases  gross 
interest  receipts  are  included  in  revenue  account  and 
expenses  on  the  other  side,  and  in  other  companies 
the  net  receipts  only  are  shown. 

But  having  obtained  a  comprehensive  and  ac- 
curate idea  of  the  assets,  the  condition  of  the  com- 
pany is  then  only  partly  shown,  for  in  life  insurance 
the  liabilities  are  unlike  those  of  any  other  class  of 
corporations.  The  obligations  of  such  an  institution 
rest  upon  two  assumptions — interest  and  mortality. 
If  the  earning  power  of  the  assets  is  less  than  the  in- 
terest assumption,  the  company  is  in  danger.  If  the 
mortality  exceeds  the  table  rate,  another  danger  ap- 


LECTURES  ON  LIFE  INSURANCE  127 

pears.  And  these  essential  points  cannot  be  learned 
from  an  annual  report.  It  is  plain  that  a  healthy- 
condition  requires  an  interest  income  in  excess  of  the 
rate  assumed  in  the  computation  of  liabilities,  and 
that  the  actual  mortality  should  be  less  than  that 
shown  by  the  table  used  in  the  mathematical  depart- 
ment of  the  company. 

But  even  this  is  not  all.  The  ability  of  the  in- 
stitution to  carry  out  its  contracts  cannot  be  alto- 
gether understood  unless  the  nature  of  its  policy  con- 
tracts shall  be  thoroughly  analyzed. 

Nor  is  this  all.  It  is  of  the  greatest  importance 
that  the  membership  of  a  truly  mutual  company 
should  be  composed  of  satisfied  policyholders  who 
value  life  insurance  for  what  it  can  do,  and  who  be- 
lieve in  their  company  and  will  thus  continue  to 
contribute  to  its  income  and  resources.  These  mem- 
bers must  be  so  selected  that  substantial  equity  shall 
be  done,  to  the  end  that  no  one  member  or  class 
shall  receive  protection  at  a  less  cost  than  prevails 
in  the  whole  body. 

The  practices  of  the  company  not  only  in  allot- 
ing  surplus  earnings,  but  especially  in  the  payment 
of  mattiring  claims,  is  of  very  great  importance  in 
considering  the  real  condition  of  a  life  insurance  com- 
pany. If  it  shall  appear  that  claims  are  met  prompt- 
ly, and  in  a  liberal  spirit,  that  no  unnecessary  and 
technical  requirements  shall  be  made,  and  especially 
that  none  shall  be  resisted  excepting  for  good  and 
sufficient  reasons,  then  this  sentiment  will  soon  be- 
come known  to  members  and  will  result  not  only 
in  satisfaction  and  profit,  but  in  additions  to  the 
number  of  policyholders.  It  is  universally  acknowl- 
edged that  reasonable  growth  in  all  directions  is  im- 
portant. While  growth  in  a  life  insurance  company 
of  moderate  size  is  desirable,  its  quality  is  extremely 
important,  and  this  is  not  indicated  in  an  annual 
statement.  New  members  must  in  respect  to  the 
risks  assumed  be  on  a  practical  equality  with  old 
members  and  the  cost  of  placing  new  policies  on  the 
books  must  not  in  the  end  be  so  great  as  to  prejudice 
the  rights  of  those  who  have  already  contributed 
toward  the  building  up  of  the  institution.     A  state- 


3  28  LECTURES  ON  LIFE  INSURANCE 

ment  may  appear  to  show  that  premiums  have  been 
secured  at  an  unreasonable  cost,  and  yet  this  may  be 
only  appearance,  for  a  part  of  the  money  spent  may 
be  invested  in  the  building  up  of  an  agency  plant 
which  in  the  end  will  prove  to  be  economical.  It  is 
much  more  important  that  growth  shall  be  steady 
year  by  year,  than  that  it  should  at  any  particular 
time  show  a  violent  expansion. 

NOT  THE  WHOLE  STORY. 

The  percentage  of  dividends  to  premium  receipts 
does  not  necessarily  tell  the  whole  story  of  the  value 
which  policyholders  receive  for  their  premiums. 
Liberal  features  often  cost  money  and  are  worth 
what  they  cost,  and  policyholders  can,  therefore,  bet- 
ter afford  to  pay  more  for  certain  kinds  of  policies 
than  they  can  for  those  which  in  the  end  cost  them 
directly  or  indirectly  something  which  cannot  be  told 
in  an  annual  report. 

There  are  a  number  of  assets  which  are  of  very 
great  value  but  which  cannot  be  estimated  in  dollars. 
A  reputation  for  fair  dealing  is  better  than  a  certain 
amount  of  railroad  bonds  without  it.  A  loyal  and 
faithful  and  intelligent  corps  of  agents  is  as  real  a 
property  as  mortgage  loans,  but  there  is  no  way  of 
expressing  its  worth  in  money.  A  home  office  in 
which  there  is  an  harmonious,  fixed,  and  unalterable 
sentiment  in  favor  of  conservatism,  equity  and  fair- 
ness is  worth  to  members  as  much  as  a  bank  deposit. 

There  are  also  certain  liabilities  which  cannot 
be  made  public,  and  among  these  are  sentiments  of 
distrust  among  policyholders  and  irritation  among 
agents  which  result  in  lawsuits,  loss  of  business,  se- 
lection against  the  company  in  the  ceasing  of  policies 
and  many  other  things  which  in  the  end  cost  money. 

Every  intelligent  man  who  takes  a  policy  on  his 
life  for  the  protection  of  dependents,  realizing  that 
it  may  run  for  many  years,  should  inform  himself  as 
to  the  real  condition  of  the  company  assuming  this 
risk,  for  he  will  of  course  desire  that  his  insurance 
shall  be  absolutely  safe  ,1  that  it  shall  be  carried  at  a 
reasonable  cost  and  that  when  it  matures  it  shall  be 


LECTURES  ON  LIFE  INSURANCE  129 

paid  in  a  spirit  of  liberality.  He  will  want  to  be  sure 
that  his  family  shall  not  be  confronted  with  technical 
requirements,  and  be  obliged  to  resort  to  lawyers  and 
courts  to  secure  that  which  he  has  provided  for  them 
by  his  own  economy  and  unselfishness.  It  is  essen- 
tial, therefore,  that  you  should  know  the  true  con- 
dition of  your  company  in  order  that  you  may  answer 
all  proper  questions,  and  be  able  to  inform  your  agents 
of  certain  facts  without  which  they  cannot  effectively 
prosecute  their  business. 

NO  FLAW. 

There  is  no  flaw  in  the  financial  condition  of  your 
company.  Its  assets  are  sound,  well  invested,  pro- 
ductive, and  valued  on  such  conservative  lines  that 
no  financial  disturbances  will  affect  them.  Its  liabili- 
ties are  liberally  computed,  and  nothing  in  the  'way 
of  obligations  is  forgotten  or  overlooked.  The  rate 
of  interest  assumed  in  the  calculation  of  its  policy 
contracts  is  so  safe  that  nothing  in  the  future  can 
affect  it  adversely.  The  rate  which  the  reserves  earn 
is  such  as  to  make  certain  that  the  contracts  will  be 
provided  for  and  surplus  returns  will  be  made  to  poli- 
cyholders for  all  time.  Its  members  have  been  se- 
lected with  such  care  that  the  mortality  has  been 
and  will  be  within  the  requirements.  No  foreign 
agencies  have  ever  been  established,  with  possibilities 
of  a  high  mortality  and  low  rate  of  interest,  and  other 
dangers.  Its  policyholders  have  been  chosen  from 
the  class  whose  record  is  thoroughly  well  known.  As 
a  result  of  all  this  its  claims  are  fair  and  honest,  and 
are  met  promptly  and  fully.  With  more  than  50,000 
policyholders  scattered  over  the  country,  there  is  no 
suit  pending  to  collect  a  disputed  claim. 

No  company  can  have  such  a  record  as  this  with- 
out a  faithful,  honest  and  loyal  field  force,  for  mem- 
bers of  an  insurance  company  are,  always  have  been 
and  always  will  be,  gathered  through  the  efforts  of 
agents,  and  the  quality  and  results  will  depend  very 
largely  on  the  character  of  the  men  who  have  taken 
the  applications. 

The  policy  contracts  have  been  framed  and  the 


130  LECTURES  ON   LIFE  INSURANCE 

rates  have  been  calculated  with  two  objects  in  view. 
First,  to  make  sure  that  the  premiums  charged  shall 
be  sufficient  under  any  and  all  circumstances,  not 
only  this  year,  but  for  all  future  time,  to  enable  the 
institution  to  carry  out  these  most  sacred  obligations 
promptly  and  fully;  and  secondly,  to  grant  policy- 
holders all  the  protection,  rights  and  privileges  con- 
sistent with  safety  and  fair  dealing. 

Understanding,  therefore,  the  basis  upon  which 
the  whole  structure  of  life  insurance  rests — that  of 
protection  against  the  loss  of  a  valuable  life — and  the 
condition  of  your  company  and  its  ability  to  give 
this  protection  safely  and  in  any  form  which  can  be 
legitimately  desired,  your  path  is  plain  and  straight, 
and  leads  to  the  home  office,  where  policies  must  be 
written,  premiums  received  and  invested  and  claims 
paid. 

Life  insurance  is  not  a  speculation,  nor  is  it  an 
investment,  although  it  may  be  the  means  of  accumu- 
lating. It  exists  for  the  purpose  of  distributing 
losses,  of  continuing  the  value  of  human  efforts  after 
the  death  of  the  producer.  Having  convinced  your 
friend — for  the  sentiment  of  friendship  is  a  legitimate 
part  of  this  business —  that  he  should  provide  for  the 
possible  cutting  off  of  his  earnings,  you  can  satisfy 
him  that  you  can  give  him  this  protection  in  any  form 
which  may  suit  his  particular  need,  and  then  you  can 
write  his  application. 

But  you  may  say  that  while  you  are  traveling 
this  straight  path  and  the  home  office  is  just  before 
you,  the  agent  of  some  other  company  steps  out  of  the 
bushes  and  engages  your  friend  in  a  discussion,  in  the 
hope  that  he  can  lead  him  by  some  other  path  to  some 
other  home  office.  Competition  is  inevitable,  and  if 
it  is  conducted  on  fair  lines  it  helps  the  business.  It 
educates  the  people  as  to  what  life  insurance  has  done 
and  what  it  can  do.  It  informs  them  how  protection 
can  be  carried  in  different  ways. 

COMPETITION. 

Competition  is  very  largely  responsible  for  the 
carrying  of  the  protection  of  life  insurance  to  millions 
of  families,  and  if  the  millions  of  people  who  are  now 


LECTURES  ON  LIFE  INSURANCE  131 

uninsured  but  who  need  to  have  protection  shall  be 
induced  to  take  it,  it  will  be  very  greatly  through  the 
education  which  will  be  carried  to  them  by  compe- 
tition. 

But  competition  is  of  two  different  kinds:  That 
which  seeks  to  secure  business  by  legitimate  methods, 
and  that  which  injures  reputations  and  restricts  the 
spread  of  true  life  insurance  by  deception  and  de- 
traction. 

The  class  of  business  most  satisfactory  to  a  com- 
pany and  most  profitable  to  an  agent  is  that  which  is 
secured  by  depicting  the  real  quality  of  life  insurance, 
by  showing  that  your  own  company  is  strong,  founded 
on  correct  principles,  and  is  intelligently  and  honestly 
managed,  for  members  who  are  secured  in  this  way 
will  be  satisfied  and  will  pay  their  premiums  as  the 
years  go  by.  It  is  proper  and  necessary  that  you 
should  believe  and  argue  that  there  is  no  better  com- 
pany than  your  own,  taking  into  consideration  all  the 
elements  which  go  to  make  up  a  good  mutual  life  in- 
surance company,  but  it  should  also  be  remembered 
that  there  are  other  good  companies — companies 
which  will  furnish  satisfactory  insurance  at  reason- 
able rates.  You  may  educate  a  man  up  to  the  point 
where  he  is  ready  to  take  insurance,  and  some  other 
agent  may  step  in  and  insure  him.  This  is  oftentimes 
depressing  and  annoying,  but  it  is  best  to  realize  that 
you  yourself  may  insure  a  man  who  has  been  edu- 
cated by  others. 

Your  own  company  restricts  its  business  to  what 
it  regards  as  the  more  healthful  portions  of  the  United 
States.  It  is  proper  for  you  to  urge  that  this  policy 
will  produce  the  best  possible  results.  Your  com- 
pany pursues  a  definite  theory  as  to  its  investments. 
It  is  just  that  you  should  claim  and  prove  that  this 
theory  is  better  than  any  other;  but  to  unjustly  criti- 
cise another  reputable  company  is  only  to  injure  the 
public  estimation  of  life  insurance  and  damage  your 
own  future  prospects. 

A  very  large  part  of  the  public  prejudice  against 
life  insurance,  of  the  unjust  and  damaging  legislation 
which  has  been  proposed,  has  come  from  the  methods 
adopted  by  those  field  workers  who  have  not  only 


132  LECTURES  ON  LIFE  INSURANCE 

led  people  to  expect  the  impossible,  but  who  have 
cast  discredit  upon  well-managed  and  useful  insti- 
tutions. 

You  may  say  that  this  is  all  very  well  in  theory, 
and  can  be  easily  talked  about  at  the  home  office,  but 
that  the  competitor  who  steps  into  the  path  may  be 
armed  not  only  with  arguments,  but  with  a  club, 
with  which  he  proposes  to  knock  you  down.  Just 
here  is  where  I  cannot  offer  advice.  No  human  be- 
ing is  perfect,  and  no  corporation  of  which  I  have 
ever  had  any  knowledge  is  free  from  criticism.  Fifty 
years  is  a  long  period  and  the  chances  of  mistakes  are 
many.  No  life  insurance  managers  who  have  ac- 
complished anything  ever  lived  or  will  live,  who  have 
avoided  all  errors.  To  dig  into  the  past  for  the  pur- 
pose of  finding  mistakes  which  have  been  cured  or 
outlived  is  not  only  cowardly,  but  is  also  foolish.  If 
your  competitor  becomes  an  adversary  and  seeks  to 
destroy  you  by  violence,  you  must  protect  yourself 
with  such  weapons  as  you  have,  so  long  as  you  rely 
upon  the  truth,  but  life  insurance  will  not  cover  its 
legitimate  field  until  every  department  at  the  home 
office  and  in  the  field  shall  be  conducted  on  principles 
of  truth  and  mutual  forbearance. 


MALADY  ANALYZED 

THE  WHOLE  SYSTEM  OF  LIFE  INSURANCE 
SHOULD  BE  IN  PERFECT  CONDITION 


(Delivered  before  Chicago  Life  Underwriters'  Association) 


T  THANK  you,  Mr.  President,  and  gentlemen,  for 
your  cordial  greeting.  It  is  a  pleasure  for  me  to  be 
with  life  insurance  people.  I  hope  I  maybe  pardoned 
for  a  personal  word.  I  have  been  in  the  life  insurance 
business  longer  than  most  of  you,  I  am  sure,  having 
been  connected  with  one  company  for  more  than  thirty 
years.  I  have  had  the  opportunity  of  observing  many 
things.  I  am  something  more,  however,  I  hope  and 
believe,  than  a  mere  official  of  one  life  insurance  com- 
pany— I  am  a  life  insurance  man ;  and,  while  my  own 
company  is  entitled  to  my  best  services,  I  believe  that 
my  services  can  be  made  best  by  doing  what  I  can  for 
the  best  good  of  the  general  business  of  life  insurance, 
for  I  believe  that  what  is  good  for  the  public  is  good 
for  life  insurance,  and  what  is  good  for  life  insur- 
ance is  good  for  my  company  and  for  all  connected 
with  it. 

I  have  been  greatly  interested  in  some  of  the 
things  I  have  heard  here  tonight.  I  have  been  inter- 
ested in  the  report  of  your  executive  committee.  I 
think  that  a  grave  responsibility  rests  upon  us  at  this 
time.  I  wish  that  I  could  say  to  you  that  life  insurance 
is  all  that  it  should  be,  that  its  practice  has  been  and 
is  all  that  it  ought  to  be,  that  the  public  have  confi- 
dence in  it,  and  that  all  you  have  to  do  is  to  present 
your  case  to  the  public  and  that  they  will  accept  what 
you  say.  I  wish  I  could  say  this,  but  I  cannot;  but  I 
am  glad  to  say  that  in  my  judgment  life  insurance  has 
yet  to  see  its  best  days.  I  believe  that  a  great  respon- 
sibility, as  I  have  said,  rests  upon  you  and  upon  all 
of  us,  and  especially  in  this  great  city  are  your  respon- 


134  LECTURES  ON  LIFE  INSURANCE 

sibilities  great.  This  city  is  one  of  the  wonders  of  the 
world;  it  has  taken  its  place  at  the  head  of  all  the 
communities  of  the  world,  and  it  seems  to  me  that 
it  is  the  proper  place  to  inaugurate  a  movement  which 
shall  in  the  end  make  life  insurance  what  it  ought  to 
be,  and  bring  to  the  public  a  realizing  sense  of  what 
it  is  and  what  true  life  insurance  can  do.  Life  insur- 
ance is  not  everything  today  that  it  might  be.  I  hope 
and  believe  that  we  have  it  in  our  power  to  make  it 
so.  Not  in  a  day,  not  in  a  year,  but  we  must  lay  our 
plans,  we  must  look  into  the  distant  future,  and  we 
must  steer  our  course  in  that  way  that  we  feel  sure 
that  we  shall  come  finally  to  that  place  where  the  pub- 
lic will  have  confidence  in  us,  in  our  business,  in  our 
companies  because  they  have  found  that  we  have  told 
them  the  truth. 

When  one  is  ill  he  seeks  for  the  cause  of  his 
malady  in  order  to  apply  such  remedy  as  will  most 
surely  and  speedily  restore  him  to  health.  He  does  not 
ask  the  advice  of  his  lawyer,  no  matter  how  learned  he 
may  be  in  the  theory  and  practice  of  the  law.  He  does 
not  seek  the  opinion  of  his  minister  as  to  his  physical 
condition,  however  eloquent  and  convincing  may  be 
the  sermons  of  the  preacher.  He  does  not  demand 
the  assistance  of  the  member  of  the  Legislature  from 
his  district  to  secure  the  passage  of  an  act  to  regulate 
the  working  of  his  various  organs.  He  lays  his  entire 
case  before  his  physician,  who  has  spent  a  lifetime  in 
studying  the  intricacies  of  the  human  machine,  and  in 
investigating  the  methods  which  may  best  be  employed 
in  regulating  any  of  the  parts  which  may  be  out  of 
order.  A  general  examination  will  show  the  particu- 
lar organs  affected.  Many  of  the  vast  number  of 
parts  which  make  up  the  whole  will  be  found  in  per- 
fect health,  but  even  these  will  sooner  or  later  suffer, 
unless  the  disease  which  affects  the  general  system 
shall  be  removed.  A  condition  of  health  in  the  entire 
body  is  essential  to  the  proper  working  of  each  mem- 
ber. A  constitution  which  is  sound  may  be  attacked 
by  a  fatal  disease  or  a  malady  caused  by  contagion  or 
infection,  but  it  may  also  be  deranged  by  an  unusual 
strain  of  some  part.     It  may  be  temporarily  disturbed 


LECTURES  ON   LIFE  INSURANCE  135 

by  over-eating  or  drinking,  or  by  exposure  to  outside 
influences  of  a  harmful  nature.  Whatever  the  cause 
may  be,  an  expert  will  understand  its  condition  and 
attack  the  cause  of  the  trouble.  Proper  remedies, 
whether  they  shall  be  by  taking  medicines,  or  by  diet- 
ing, or  by  any  course  of  living,  cannot  be  determined 
until  the  reason  for  the  condition  shall  be  known,  and 
then  the  remedies  will  depend  upon  many  consider- 
ations. The  mind,  the  body,  the  occupation,  sur- 
roundings— all  must  be  studied. 

Life  insurance  is  suffering  from  illness.  Its  con- 
stitution is  sound,  many  of  the  parts  which  go  to 
make  up  the  whole  are  in  healthy  condition  thus  far, 
although  they  may  show  the  scars  of  ancient  wounds. 
But  it  is  a  shortsighted  and  narrow  view  to  take,  that 
any  one  member  of  this  great  institution  can  flourish 
in  the  best  sense  of  the  word,  unless  the  whole  system 
shall  be  in  a  condition  of  general  health. 

The  man  who  is  suffering  from  any  form  of  tem- 
porary illness  will  be  pretty  sure  to  get  unsolicited 
advice  from  his  neighbors  and  associates.  They  will 
tell  him  off-hand  what  is  the  matter  with  him1  and  what 
will  cure  him.  And  so  there  have  been  many  who 
have  expressed  opinions  as  to  the  cause  of  the  disorder 
in  the  life  insurance  system  and  have  prescribed 
remedies. 

If  we  go  back  to  the  beginnings,  we  shall  find 
that  the  system  was  originally  based  on  perfectly 
sound  reasoning,  and  that  it  has  grown  in  size  and 
strength  through  many  generations.  It  flourished  so 
long  as  it  was  confined  to  those  purposes  for  which 
it  was  planned,  but  ambition  took  hold  upon  some  of 
its  managers,  and  schemes  were  devised  for  diverting 
it  from  its  legitimate  purpose. 

I  am  not  one  of '  those  who  believe  that  the 
deferred  dividend  is  necessarily  and  essentially  wrong, 
and  I  am  quite  willing  to  admit  that  the  protection  of 
life  insurance  has  been  carried  into  many  families 
which  would  not  have  had  it  but  for  this  temptation. 
But  all  the  arguments  that  have  been  made  to  magnify 
the  value  of  a  life  insurance  policy  as  an  investment 
or  speculation,  and  minimize  the  importance  of  it  as 


136  LECTURES  ON  LIFE  INSURANCE 

protection,  have  done  much  to  cause  the  disorder  which 
now  afflicts  the  entire  body. 

Life  insurance  exists  for  the  purpose  of  repair- 
ing the  loss  occasioned  by  the  premature  destruction  of 
a  life  which  has  a  pecuniary  value.  It  may  incident- 
ally be  the  means  of  accumulating  money  which  other- 
wise might  be  .wasted  or  lost,  but  a  life  insurance  com- 
pany is  not  a  savings  bank  and  is  not  an  investment 
bureau.  It  cannot  take  a  man's  money  and  return  it 
to  him  with  the  current  rate  of  interest  added,  and 
throw  in  the  life  insurance  beside.  It  never  could  do 
this,  and  that  portion  of  the  business  which  was  done 
on  any  such  representation  was  like  food  which  can- 
not be  digested.  Some  troubles  can  be  cured  at  once, 
but  some  which  have  been  long  coming  on  it  will  take 
long  to  eradicate. 

The  malady  which  affects  life  insurance  can  be 
traced  to  several  causes — mismanagement  at  the  home 
office  and  false  methods  in  the  field.  Laws  will  not 
cure  human  diseases,  nor  will  they  alone  effect  a  healthy 
and  lasting  recovery  in  corporations  which  are  suffer- 
ing from  illness. 

I  think  it  is  safe  to  say  that  the  disease,  so  far  as 
it  relates  to  the  home  office  managements,  has  been 
treated  in  such  a  way  as  to  give  hope  of  an  early 
recovery.  This  is  not  due  so  much  to  legislation  as  it 
is  to  a  much  more  powerful  and  far-reaching  medicine, 
and  that  is  publicity. 

It  seems  to  me  that  you  and  your  associates  now 
have  it  in  your  power,  not  perhaps  to  effect  a  complete 
cure  in  a  month  or  in  a  year,  but  to  so  conduct  your 
business  that  many  of  the  difficulties  which  afflict  the 
system  will  gradually  disappear. 

A  life  insurance  company  can  have  but  one  object, 
and  that  is  to,  furnish  sound  protection  at  a  reasonable 
cost ;  and  your  sole  purpose  must  be  to  explain  not 
that  this  protection  can  be  assured  at  less  than  cost, 
but  that  the  price  is  one  which  the  insured  can  afford 
to  pay  for  what  he  gets.  Impossible  estimates,  unfair 
competition  and  abuse  have  no  place  in  your  work,  if 
you  wish  to  see  the  business  placed  upon  a  basis  which 
will  yield  you  satisfactory  returns  in  the  future. 


LECTURES  ON  LIFE  INSURANCE  137 

The  man  who  is  induced  to  take  a  policy  because 
he  thinks  he  will  personally  make  a  profit  in  the  trans- 
action, the  person  who  is  hesitating  between  two 
reputable  companies  and  finally  takes  one  because  he 
is  told  that  the  other  is  not  worthy  of  his  confidence, 
the  one  who  accepts  a  policy  contract  because  he  can 
get  it  for  less  than  it  is  worth—these  are  undesirable 
policyholders  both  from  the  standpoint  of  the  agency 
and  the  company,  for  they  will  not  continue  to  pay 
their  premiums  and  will  join  the  multitude  of  those 
who  will  have  good  reasons  for  saying  that  the  system 
of  life  insurance  has  flaws  which  its  own  management 
will  not  rectify,  and  which,  therefore,  the  Legislature 
must  control. 

The  policyholders  of  a  company  must  of  neces- 
sity bear  the  expense  of  maintaining  the  home  office, 
and  with  the  constantly  increasing  requirements  of 
analyzing  the  operations  in  all  their  vast  details,  this 
cost  will  not  decrease  with  a  falling  off  of  new  busi- 
ness or  even  a  decrease  of  outstanding  insurance. 
To  maintain  a  condition  of  health,  therefore,  and  to 
attain  the  most  favorable  results,  a  steady  addition  of 
well  selected  new  lives  is  most  desirable — always  pro- 
vided that  they  are  informed  in  advance  of  the  true 
nature  of  their  contracts  and  the  real  condition  and 
reasonable  prospects  of  their  company. 

And  what  is  true  in  this  respect  of  the  company  is 
equally  true  of  each  of  its  agencies.  Your  income  and 
what  should  be  quite  as  important,  your  happiness  and 
contentment  will  depend  upon  the  satisfaction  of  your 
policyholders,  every  one  of  whom  should  be  helpful 
to  you.  If  they  have  been  honestly  insured  not  only 
will  they  continue  to  pay  premiums,  but  many  will  take 
additional  insurance,  and  by  their  commendations  will 
make  it  easy  to  add  to  your  members.  Unfair  attacks 
in  the  newspapers  and  where  men  gather  to  exchange 
opinions,  prejudice  against  our  business,  hostile  legisla- 
tion, do  not  emanate  from  those  who  have  been  insured 
fairly  and  .who  are  getting  a  fair  return  for  the  pre- 
miums they  are  paying.  Your  policyholders  should  be 
your  friends  and  you  may  be  sure. that  such  a  condition 
is  worth  more  to  you  in  money  even  than  high  com- 
missions and  bonuses. 


138  LECTURES  ON  LIFE  INSURANCE 

But  the  manager  of  some  company  may  argue 
that  the  general  condition  of  life  insurance,  does  not 
concern  him  because  his  own  company  is  strong, 
and  healthy,  and  growing  sufficiently  in  membership 
and  resources.  He  may  forget  past  illnesses  which 
have  been  cured  and  have  left  no  trace,  for  no  human 
being  and  no  corporation  can  show  a  perfect  life.  He 
may  feel  sufficient  in  his  own  strength.  But  he  and 
you  if  you  represent  his  company  will  surely  be 
affected  by  any  disease  which  seriously  impairs  the 
health  of  the  great  system  of  life  insurance. 

The  public  and  legislators  do  not  spend  their 
time  in  contemplating  the  virtues  of  corporations.  They 
form  opinions  and  make  laws  from  hostile  investiga- 
tions of  a  system  as  a  whole.  You  and  I  know  that 
our  business  has  saved  thousands  from  lives  of  pov- 
erty and  crime,  that  it  has  spared  the  pockets  of  many 
— who  never  contributed  to  it  a  dollar — from  taxes  for 
almshouses  and  prisons  and  criminal  courts,  that  it  has 
made  it  possible  for  the  poor  to  conscientiously  marry 
and  that  it  has  elevated  the  moral  tone  of  the  civilized 
world.  We  know  all  this  and  more;  but  when  laws 
have  been  proposed,  calculated  to  curtail  the  spread 
of  this  protection  among  those  who  need  it  most,  and 
even  to  finally  destroy  the  whole  fabric,  has  there  been 
a  public  protest  against  such  a  mockery  of  the  liberty 
for  which  our  fathers  fought?  Have  legislative  com- 
mittees sought  for  evidence  of  the  good  which  life  in- 
surance has  done,  and  tried  to  devise  laws  which 
should  eliminate  its  evils  without  checking  its  bene- 
fits ?  I  think  not.  And  contemplating  all  this,  can  any 
one  of  the  great  army  who  are  in  their  various 
capacities  engaged  in  this  business  say  that  he  is  not 
concerned  in  the  welfare  of  the  whole  system? 

But  a  consideration  of  the  obstacles  in  our  path 
will  not  avail  unless  we  can  find  means  for  removing 
them.  A  pathetic  figure  in  mythology  is  the  one  who 
was  forever  rolling  up  hill  a  stone  which  always  rolled 
back.  But  we  are  not  condemned  to  such  a  hopeless 
task.  The  rocks  and  boulders  which  have  of  late 
seemed  to  obstruct  the  road,  until  many  have  sought 
other  avenues,  have  only  been  dislodged  by  rains  or 


LECTURES  ON  LIFE  INSURANCE  139 

earthquakes,  and  they  can  be  cleared  away  if  we  see 
them  distinctly  and  patiently  remove  them  one  by  one. 

I  believe  in  life  insurance,  and  I  believe  that  the 
time  will  come  when  the  intelligent,  right-minded  and 
thoughtful  public  will  appreciate  it  at  its  true  value. 
Even  when  that  time  comes  they  will  not  voluntarily 
apply  for  insurance  and  bear  the  expense  of  proving 
from  near  and  distant  points  that  they  are  suitable 
candidates  for  membership.  The  agent  always  has 
been  and  always  will  be  an  absolutely  necessary  part 
of  the  system  if  its  benefits  are  to  be  generally  spread 
abroad,  and  I  believe  that  his  labors  will  be  far  bet- 
ter rewarded  in  the  future  than  they  ever  have  been 
in  the  past.  Do  not  think  that  I  am  looking  for  the 
early  arrival  of  the  millennium.  When  that  happy 
time  comes  the  agent  will  not  be  needed,  for  every 
insurable  and  valuable  life  will  seek  such  an  amount 
of  life  insurance  as  will  protect  its  dependents  and 
even  the  public  against  loss. 

Human  selfishness  and  procrastination  will  re- 
main even  with  an  appreciation  of  all  that  life  insur- 
ance means  to  the  individual  and  the  public.  And 
therefore  the  agent  must  urge  his  plea  and  write  the 
application  and  bring  the  doctor.  But  he  will  not  need 
to  enter  into  elaborate  arguments  to  show  that  life 
insurance  is  as  legitimate  a  business  as  fire  insurance, 
or  as  banking,  and  is  conducted  with  as  much  intel- 
ligence, economy  and  honesty  as  either. 

If  I  am  right  then  the  question  which  presents 
itself  to  us  is  how  can  we  hasten  the  arrival  of  this 
time. 

We  can  base  our  arguments  upon  the  value  of 
human  life  as  shown  by  the  experiences  of  many  gen- 
erations, upon  the  duty  which  everyone  owes  to  others, 
upon  the  stability  of  our  business  if  properly  con- 
ducted, as  shown  by  many  examples.  We  shall  show 
our  ability  to  give  sure  protection,  but  we  shall  not 
feed  the  flame  of  criticism  by  claiming  virtue  for  our- 
selves and  denying  it  to  others.  "He  that  is  without 
sin  among  you  let  him  first  cast  a  stone."  Is  there 
any  company  of  which  it  can  be  said  that  it  has  been 
and  is  without  a  stain?  Is  there  any  representative 
of  any  company  of  whom  it  can  be  asserted  that  he 


140  LECTURES  ON  LIFE  INSURANCE 

is  without  blemish  ?  There  are  frauds  among  farmers, 
in  banking,  in  the  law,  in  the  pulpit,  in  life  insurance. 
It  is  proper  to  expose  them  and  to  warn  the  unwary 
against  them. 

It  is  best  that  a  state  government  should  by^  laws 
protect  its  citizens  not  only  against  violence,  but  also 
against  adulteration  in  food,  medicine,  life  insurance. 
There  are  good  laws  and  bad  laws ;  those  which  pro- 
tect the  people  in  their  just  rights,  and  those  which 
interfere  with  the  privileges  which  belong  to  a  free 
nation  and  which  instill  into  the  public  mind  the  idea 
that  the  dishonest  can  be  made  honest  and  the  foolish 
wise  by  acts  of  the  Legislature.  Such  are  demoraliz- 
ing and  weakening  to  the  independence  of  a  country. 
And  yet  general  laws  come  from  a  general  even  though 
mistaken  demand,  and  if  time  shows  that  they  are 
wrong  they  will  be  remedied. 

It  has  been  shown  that  there  have  been  serious 
defects  not  in  our  business,  but  in  the  conduct  of  it. 
We  shall  not  profit  by  claiming  that  prejudice  and 
resulting  distrust  have  no  foundation.  They  are  based 
on  facts  but  like  many  waves  of  criticism  and  theoreti- 
cal reform,  they  have  gone  too  far.  We  have  been 
charged  with  faults  which  we  have  never  committed. 
Purposes  have  been  attributed  to  us  which  we  have 
never  entertained.  Men  posing  as  reformers  have 
sought  to  gain  public  applause  and  political  advantage 
by  trying  to  convict  us  of  ignorance  and  a  disregard 
of  our  trust.  It  is  for  us  to  show  that  our  experience 
and  our  labors  are  devoted  to  the  honest  prosecution 
of  the  best  business  known  to  the  commercial  world. 

True  life  insurance  is  not  overdone.  The  aggre- 
gate value  of  the  insurable  lives  in  this  country,  lives 
upon  whom  others  have  a  right  to  depend,  is  many 
times  greater  than  all  the  insurance  which  is  now 
or  ever  has  been  carried  on  them. 

It  is  for  us  to  so  conduct  our  affairs  at  the  home 
office  and  in  the  field  that  we  shall  be  recognized  as 
the  friends  of  the  people  and  not  their  enemies.  Then 
will  our  legitimate  field  be  opened  to  us  and  the  public 
and  their  representatives  in  the  governments  will 
realize  that  we  are  performing  a  service  which  is  en- 
titled to  their  confidence  and  support. 


THE  PHOENIX  MUTUAL  LIFE  INSURANCE 
COMPANY 

An  Analysis  of  Its  Financial  Condition  and 

Theory  of  Its  Management,  Plans  and 

Future  Prospects 


(Delivered  before  the  General  Manageis'  Association) 


T  T  behooves  the  prudent  man  to  carefully  consider 
and  fully  understand  the  real  condition  of  the 
company  to  which  he  not  only  entrusts  his  money, 
but,  what  is  vastly  more  important,  the  protection 
of  dependents. 

Financial  strength  in  a  life  insurance  company 
is  more  important  to  its  members  than  is  that  of  any 
other  institution  handling  other  people's  money  to 
those  who  patronize  it.  A  bank  exists  for  the  ac- 
commodation of  its  customers  in  making  collections, 
receiving  their  money  and  paying  it  to  them  when- 
ever they  may  need  it.  Its  failure  may  be  an  un- 
pleasant incident,  and  even  in  some  cases  distress- 
ing, but  the  amount  of  the  individual  loss  is  definite 
and  the  loser  may  be  able  to  make  it  up.  In  case 
of  the  failure  of  a  life  insurance  company,  however, 
something  more  is  involved  than  the  mere  loss  of 
money,  for  while  some  of  its  policyholders  may  be 
able  to  get  insurance  in  other  companies,  in  many 
cases  they  cannot  do  this,  and  the  protection  which 
a  policy  represents  will  then  be  lost  beyond  the  power 
of  recovery. 

The  real  strength  of  a  life  insurance  company 
cannot  be  fully  measured  by  an  inspection  of  the  as- 
sets and  liabilities  appearing  in  an  ordinary  state- 
ment. There  are  elements  which  do  not  appear  on 
the  surface  quite  as  important  as  the  character  of 
its  investments.  Its  liabilities  are  of  a  peculiar 
character,  inasmuch  as  the  obligations  assumed  under 
its  policies  may  mature  at  any  time,  or  may  not  be 
presented  for  many  years. 


142  LECTURES  ON  LIFE  INSURANCE 

We  can  conceive  of  a  life  insurance  company 
all  of  whose  business  might  consist  of  paid-up  in- 
surance. Such  a  company  would  have  no  premium 
income,  and  would  be  obliged  to  depend  upon  its 
interest  account  and  the  sale  of  its  securities  for  the 
payment  of  its  claims  and  expenses.  It  is  true  that 
such  a  company  might  be  perfectly  strong  and  serve 
its  members  efficiently,  but  a  mere  inspection  of  as- 
sets and  liabilities  would  not  disclose  its  actual 
strength. 

Policy  obligations  are  calculated  upon  a  mor- 
tality table  and  an  assumed  rate  of  interest,  and  un- 
less the  actual  experience  shows  a  death  rate  within 
that  assumed,  and  interest  receipts  enough  in  excess 
of  the  rate  used  in  figuring  the  liabilities  to  pay  ex- 
penses, such  company  would  be  as  truly  insolvent  as 
if  the  value  of  its  assets  were  less  than  the  liabilities. 

On  the  other  hand,  a  company  might  have  a 
large  premium  income,  but  unless  it  had  reserved 
from  this  a  sufficient  amount  to  meet  its  future  ob- 
ligations, and  unless  its  actual  premiums  were  suffi- 
cient to  cover  all  the  future  liabilities,  such  a  com- 
pany might  not  be  able  to  pay  its  final  claims. 

The  chief  item  of  the  liabilities  of  a  life  insur- 
ance company  is  called  the  "Reserve",  which  is  the 
amount  retained  and  set  aside  from  past  premiums 
to  meet  future  claims.  Technically  this  reserve  is 
the  difference  between  the  present  value  of  the  sum 
insured  and  the  present  value  of  the  future  pre- 
miums which  will  be  required  to  secure  that  sum. 
In  a  single-premium  or  paid-up  policy,  the  reserve 
is  the  present  value  of  the  sum  insured.  If  it  is  a 
single-premium  or  paid-up  life  policy,  and  the  in- 
sured is  50  years  old,  the  reserve  is  $555;  if  it  is  an 
annual  life  policy  which  has  been  in  force  ten  years, 
and  the  insured  is  now  50,  the  reserve  is  $555  less  the 
future  premiums  which  it  is  expected  will  be  re- 
ceived, amounting  to  $378,  leaving  $177  as  the  net 
liability  or  reserve.  These  calculations  are  all  on 
what  are  called  net  premiums,  but  the  actual  pre- 
miums charged  are  considerably  larger  than  the  net 
to  provide  for  expenses  and  contingencies  of  all  kinds. 
Some  of  the  policies  now  being  issued  will  still  be  in 


LECTURES  ON  LIFE  INSURANCE  143 

force  fifty  or  even  seventy- five  years  hence,  and  the 
premiums,  which  cannot  be  increased,  must  be  suffi- 
cient for  all  future  variations  of  interest  and  fluctua- 
tions of  mortality.  Under  existing  conditions,  these 
premiums  are  somewhat  larger  than  present  neces- 
sities require,  but  the  members  of  a  mutual  life  in- 
surance company  receive  their  protection  at  cost, 
because  surplus  premiums  and  earnings  are  dis- 
tributed to  them  in  the  shape  of  dividends. 

Measured  by  any  of  these  tests,  what  is  the  con- 
dition of  the  Phoenix  Mutual  Life  Insurance  Com- 
pany? Are  its  assets  sufficient  to  meet  its  liabilities 
under  any  and  all  circumstances,  present  or  future? 
Are  its  policy  contracts  and  premiums  liberal  and 
sure  for  this  year  and  half  a  century  hence? 

These  are  questions  which  are  of  the  utmost  im- 
portance to  present  members,  and  to  those  who  are 
considering  whether  they  need  and  should  have  the 
protection  afforded  by  a  life  insurance  company. 

The  premium  income  of  this  Company  for  the 
past  twelve  months  was  something  more  than  $4,000,- 
000.  The  actual  net  premiums  required  to  carry 
its  policies  under  the  mortality  tables  and  rates  of 
interest  adopted  in  its  calculations  was  $3,240,000. 
The  surplus  of  actual  over  net  premiums,  therefore, 
was  $760,000.  Had  the  mortality  of  the  Company 
been  the  full  table  rate,  there  would  have  been  this 
margin  to  provide  for  expenses,  taxes  and  all  other 
contingencies.  As  a  matter  of  fact,  however,  the 
actual  mortality  was  70  per  cent,  of  the  table  rate, 
and  the  death  rate  has  not  varied  widely  in  the  past 
ten  years,  nor  is  it  likely  to  greatly  increase  in  the 
future,  certainly  so  long  as  a  fair  volume  of  new  busi- 
ness is  secured. 

The  amount  of  interest  required  to  maintain 
the  reserve  in  the  year  1907  was  $823,000  and  the 
actual  interest  receipts  amounted  to  $1,129,000. 
There  is,  therefore,  an  excess  on  this  score  of  $306,000 
to  provide  for  contingencies  and  to  contribute  to  the 
payment  of  dividends. 

Bearing  in  mind  the  principles  adopted  in  cal- 
culating the  liabilities,  let  us  now  turn  to  the  assets 
to  consider  whether  they  are  sound  and  sufficient  to 
meet  the  requirements. 


14-4  LECTURES  ON  LIFE  INSURANCE 

The  real  estate  now  owned  by  the  Company  was 
appraised  by  the  Connecticut  insurance  commis- 
sioner at  the  time  of  his  recent  examination  at  an 
amount,  as  a  whole,  about  $85,000  more  than  the 
book  valuation.  There  does  not,  therefore,  seem  to 
be  any  reason  for  providing  for  a  loss  on  this  account. 
The  mortgage  loans,  some  eight  thousand  in  num- 
ber, are  well  secured,  but  one  foreclosure  having 
been  necessary  in  the  past  four  years.  No  deprecia- 
tion account  is  needed  on  this  score.  Policy  loans 
are  abundantly  secured  and  will  not  decline. 

In  the  list  of  assets,  therefore,  there  is  but  one 
item  which  is  liable  to  depreciation,  and  that  is  the 
stocks  and  bonds.  At  the  close  of  last  year  the  mar- 
ket values  of  those  securities  were  lower  than  they 
ever  were  before  and  probably  less  than  they  ever 
will  be  again — certainly  much  below  what  they  are 
today.  This  depreciation  was  met  by  placing  in  the 
liabilities  a  fluctuation  fund  sufficient  to  make  good 
even  this  unusual  decline.  It  is  quite  evident,  there- 
fore, that  providing  for  all  these  liabilities  and  con- 
tingencies, the  Company  is  not  only  in  a  thoroughly 
sound  and  healthy  condition  at  this  time,  but  that 
its  premiums  and  interest  will  be  sufficient  to  meet 
all  possible  future  demands  or  the  most  violent  fluct- 
uations in  the  financial  world. 

The  next  statement  will  be  made  at  the  close  of 
the  present  year,  and  at  that  time  the  apportionment 
of  dividends  for  the  coming  year  will  be  made.  In 
addition  to  the  fluctuation  and  contingency  reserves 
in  the  present  statement,  therefore,  the  gains  and 
earnings  of  the  year  will  be  available  for  all  pos- 
sibilities and  for  the  payment  of  dividends.  A 
healthier  condition  can  scarcely  be  imagined. 

We  have  now  a  mutual  life  insurance  company 
whose  assets  are  sound  and  producing  a  higher  rate 
of  interest  than  the  requirements  of  the  reserve, 
whose  mortality  is  steadily  less  than  that  provided 
for  by  the  tables,  whose  premium  income  is  received 
from  a  satisfied  body  of  members,  whose  earnings 
are  healthy,  and  whose  general  condition,  therefore, 
is  much  stronger  than  the  business  statement  indi- 
cates. 


LECTURES  ON  LIFE  INSURANCE  145 

What  now  is  the  proper  course  to  be  pursued? 
We  here  are  policyholders,  and  it  will  be  useful  for 
us  to  consider  general  questions  as  policyholders  and 
not  as  those  who  derive  their  incomes  from  the  in- 
stitution. If  the  theories  upon  which  the  business 
is  based  are  sound,  and  if  the  condition  of  affairs  is 
healthy,  then  the  Company  can  cease  issuing  new 
policies,  gradually  liquidate,  and  finally  pay  out  its 
last  claim  in  full.  I  have  no  doubt  that  this  could  be 
done,  but  inasmuch  as  policyholders  are  mortal,  and 
certain  expenses  would  of  necessity  go  on,  the  death 
rate  would  inevitably  increase  and  gradually  ap- 
proach the  table  rate,  the  expenses  of  administration 
would  show  an  increasing  percentage  to  resources, 
and  consequently  the  cost  of  carrying  insurance  to 
policyholders  would  increase  by  the  necessity  of  di- 
minishing dividends.  If,  on  the  other  hand,  new 
members  of  the  same  class  as  those  who  now  are  in- 
sured can  be  added,  and  steady  and  reasonable  growth 
can  be  secured,  the  mortality  will  continue  favorable 
and  the  expense  will  show  a  decrease. 

It  is  of  course  possible  that  this  increase  might 
be  made  upon  terms  which  would  prejudice  old  policy- 
holders, for  new  business  has  been  and  probably  is 
now  being  done  by  some  companies  at  a  cost  which 
is  greater  than  any  value  it  can  be  to  present  mem- 
bers. If,  however,  part  of  this  cost  can  be  fairly 
said  to  be  for  the  purpose  of  building  up  an  agency 
force  which  will  in  the  future  produce  steady  and 
healthy  results,  that  portion  is  not  strictly  an  ex- 
pense of  new  business,  but  rather  in  the  nature  of  an 
investment. 

Under  the  present  conditions  this  Company  is 
acquiring  new  business  on  terms  which  will  be  not 
only  not  prejudicial  to  old  members  but  directly  for 
their  benefit.  We,  then,  as  policyholders,  have  a 
direct  pecuniary  interest  in  the  growth  of  the  Com- 
pany, and  this  growth  cannot  be  obtained  excepting 
through  agents,  and  no  growth  can  be  healthy  and 
permanently  satisfactory  unless  these  agents  shall 
be  faithful  both  to  their  policyholders  and  to  their 
company.  Each  agent  desires  to  increase  his  pre- 
mium income,  and  therefore  his  compensation,  and 


146  LECTURES  ON  LIFE  INSURANCE 

if  this  shall  be  accomplished  at  a  reasonable  expense, 
he  is  continually  strengthening  the  Company  as  a 
whole.  Each  officer  and  employee  of  the  Company 
desires  the  same  result,  for  upon  its  success  must  de- 
pend his  own  position  and  compensation.  As  policy- 
holders, therefore,  as  officers,  and  as  agents,  we  have 
a  common  interest — to  produce  substantial  growth 
that  we  may  be  able  to  carry  insurance  for  .our  mem- 
bers at  a  decreasing  cost,  and  with  an  increasing  in- 
come to  agents.  All  this  can,  best  be  accomplished 
by  the  most  cordial  harmony  between  policyholders, 
agents  and  the  Home  Office,  which  I  believe  exists 
to  a  greater  degree  in  this  Company  than  in  any  other. 


HOW  FAR  SHOULD  THE  OPERATIONS 

OF  A  LIFE  INSURANCE  COMPANY 

BE  REGULATED  BY  LAW  ? 


{Delivered  before  the  Economic  Club  of  Boston) 


A  MUTUAL  life  insurance  company  is  a  combina- 
tion of  persons  who  agree  among  themselves  to 
make  good  the  losses  occasioned  by  the  termination 
of  valuable  lives  among  their  number.  It  exists  by 
virtue  of  an  act  of  incorporation  granted  by  some 
government,  which  makes  it  possible  to  transact  bus- 
iness under  the  laws  and  to  do  those  things  which  are 
necessary  to  carry  out  the  purposes  for  which  it  is 
organized.  Such  an  institution  does  not  ask  or 
receive  any  favors  or  special  privileges  from  the  pub- 
lic. It  simply  secures  the  right  to  carry  its  protec- 
tion to  those  who  wish  it  under  conditions  and  in  ways 
which  are  set  forth  in  its  charter.  It  does  not  take 
or  use  property  belonging  to  the  public,  nor  is  the 
protection  or  endorsement  of  the  state  employed  for 
personal  and  private  gain. 

Every  productive  life  has  a  value  not  only  to 
those  who  are  dependent  upon  it,  but  also  to  the  state, 
in  accordance  with  the  length  of  time  during  which 
it  will  retain  its  earning  power,  and  the  termination 
of  such  a  life  inflicts  a  loss  upon  the  total  wealth  of 
the  country.  The  destruction  by  fire  of  a  building 
which  produces  an  income  for  its  owner  reduces  the 
wealth  of  the  world  by  just  the  amount  of  its  value. 
This  loss  may  be  distributed  by  the  operation  of  in- 
surance, but  it  is  not  made  up.  In  no  way  except 
by  insurance  can  disasters  caused  by  death,  fire,  storm 
and  accident  be  transferred  from  the  individual  to 
the  community.  To  illustrate  this  principle  by  a 
common  occurrence,  let  us  suppose  the  following  ex- 
tract from  a  newspaper :  "A  fire  broke  out  last  even- 
ing in  the  building,  No.   I   Main  street,  owned  and 


148  LECTURES  ON  LIFE  INSURANCE 

occupied  by  John  Smith,  druggist,  and  before  the 
flames  could  be  subdued  the  building  and  contents 
were  practically  destroyed.  The  loss  is  estimated  at 
$25,000.  Insurance  for  $20,000."  To  this  may  be 
added  in  explanation :  By  the  prudence  of  the  owner 
$20,000  of  this  loss  was  distributed  by  the  operation 
of  fire  insurance  among  a  large  number  of  other  per- 
sons, whose  individual  contributions  were  so  small 
as  to  cause  no  inconvenience,  while  the  remainder 
falls  upon  the  owner. 

Another  occurrence  may  be  described  as  follows : 
"Mr.  Joseph  Robinson  died  yesterday  from  an  oper- 
ation for  appendicitis.  He  had  been  connected  with 
the  First  National  Bank  of  this  town  for  twenty 
years,  during  the  last  ten  of  which  he  was  its  presi- 
dent. He  was  a  man  of  high  character  and  marked 
business  ability,  to  .whom  the  success  of  the  bank  has 
been  largely  due.  He  had  always  enjoyed  robust 
health  until  the  attack  which  ended  in  his  death  at 
the  age  of  50  years."  To  this  may  be  added  by  way 
of  explanation :  It  is  estimated  by  those  in  a  position 
to  know,  that  the  loss  occasioned  by  his  death  was 
not  less  than  $60,000.  Insurance  for  $10,000.  In 
other  words,  $10,000  of  this  loss  was  distributed  by 
the  operation  of  life  insurance  among  many  other 
people,  whose  individual  contributions  were  not  bur- 
densome, while  the  remainder  of  the  loss  falls  upon 
his  family. 

A  stock  corporation  exists  for  the  sole  purpose  of 
paying  dividends  to  its  shareholders  who  risk  their 
money  for  no  other  object.  Mutual  life  insurance  com- 
panies and  savings  banks  without  capital  are  institu- 
tions of  a  wholly  different  character.  They  are  owned 
and  managed  for  the  sole  benefit  of  their  policy- 
holders or  depositors.  It  must  be  assumed  that  they 
are  engaged  in  legitimate  and  useful  work  and  that 
they  should  be  allowed  to  conduct  their  affairs  with- 
out interference,  so  long  as  it  is  reasonably  certain 
that  they  are  guided  by  the  laws  of  mortality  and  are 
managed  intelligently.  It  will  not  be  denied  that  it 
is  the  duty  of  the  state  which  creates  a  corporation  or 
permits  it  to  deal  with  its  citizens  to  enact  such  laws 


LECTURES  ON  LIFE  INSURANCE  149 

as  will  be  most  likely  to  insure  honest,  safe  and  cor- 
rect methods. 

A  life  insurance  company  is  made  up  of  two  dis- 
tinct departments — that  which  conducts  matters  con- 
nected with  the  business  of  insurance,  and  that  which 
cares  for  the  investment  of  the  funds  which  it  holds 
for  ithe  final  payment  of  its  policy  obligations.  Its 
assets  may  differ  materially  from  those  of  any  other 
financial  institution,  because  they  are  not  liable  to  be 
claimed  at  any  time  by  their  owners,  like  those  of  a 
bank,  nor  will  they  be  subject  to  the  necessity  of 
prompt  realization  as  may  be  the  case  in  a  fire  insur- 
ance company.  Laws,  therefore,  which  might  be 
proper  for  the  regulation  of  investments  of  a  savings 
bank  might  be  wholly  unwise  for  the  government  of 
a  life  insurance  company,  by  depriving  its  members 
of  the  benefit  of  the  higher  rate  of  interest  obtainable 
on  some  investments  without  increasing  their  security. 


DEALS  WITH  THE  DISTANT  FUTURE 

A  life  insurance  company  is  a  peculiar  institu- 
tion. It  has  to  deal  with  the  distant  future.  Its  con- 
tracts must  rest  upon  an  estimate  of  conditions  which 
will  prevail  many  years  hence.  While  the  elements 
which  enter  into  its  constitution  are  not  at  all  mys- 
terious, yet  they  are  of  a  character  which  require  a 
knowledge  of  many  intricate  problems  which  the  aver- 
age man  has  neither  the  time  nor  the  facilities  for  in- 
vestigating. The  nature  of  life  insurance  is  such 
that  those  who  receive  its  protection  must  belong  to 
a  class  whose  prospects  of  longevity  can  be  safely 
predicted.  Its  policy  contracts  must  be  protected  by 
accumulations  of  property  bearing  a  certain  rate  of 
interest,  and  assets  rise  in  an  extensive  business  to 
large  sums.  It  is  proper,  therefore,  for  the  state  to 
prescribe  a  mortality  table  and  a  maximum  rate  of 
interest  for  computing  liabilities.  It  is  also  wise  that 
laws  should  be  made  for  the  guidance  of  those  who 
are  inexperienced  in  the  handling  of  trust  funds,  or 
for  the  control  of  those  who  might  be  tempted  to 
sacrifice  safety  for  the  chance  of  profit. 


150  LECTURES  ON  LIFE  INSURANCE 

There  are  some  things  which  laws  can  accom- 
plish, and  some  which  they  cannot.  Statutes  may  well 
be  enacted  at  this  time  to  prevent  those  who  manage 
life  insurance  companies  from  employing  the  power 
placed  in  their  hands  for  personal  profit  or  advantage, 
from  using  the  money  under  their  control  for  any 
purposes  whatever  except  to  meet  policy  claims  and 
the  necessary  and  legitimate  expenses  of  conducting 
the  business,,  and  from  making  false  or  misleading 
statements.  It  is  true  that  laws  of  this  character 
seem  to  be  expedient  at  this  time,  although  there  are 
many  companies  whose  record  does  not  show  any 
necessity  for  legal  control  in  any  of  these  matters. 
It  may  be  proper  also,  in  view  of  the  peculiar  nature 
of  life  insurance,  and  the  necessity  of  large  accumu- 
lations, to  limit  the  business  to  be  done  when  com- 
panies have  attained  a  size  beyond  which  they  cannot 
safely  and  properly  go  in  investing  their  funds  and 
supervising  their  business. 


PUBLICITY 

The  people  have  a  right  to  know  Row  companies 
are  conducted,  and  the  government  can  properly 
obtain  and  make  public  all  reasonable  details  of  the 
transactions  and  condition  of  those  corporations  which 
it  has  created,  and  to  which  have  been  confided  trusts 
of  a  character  so  important  and  even  sacred.  But 
the  law  cannot  create  honesty  and  intelligence  where 
these  qualities  do  not  exist.  It  cannot  compel  a  safe 
selection  or  graduation  of  risks,  nor  can  it  make  sure 
that  each  investment  shall  produce  the  necessary  rate 
of  interest  and  return  the  principal  intact.  It  can 
do  a  great  deal,  however,  toward  making  it  unprofit- 
able for  dishonest  men  to  engage  in  the  business,  and 
guiding  the  ignorant  and  incompetent. 

No  other  laws  than  those  indicated  have  appeared 
to  be  necessary  or  even  desirable  until  a  recent  period. 
But  circumstances  have  now  arisen  which  seem  to 
many  to  justify  governmental  control  which  under 
ordinary  circumstances  would  be  pernicious,  demoral- 


LECTURES  ON  LIFE  INSURANCE  151 

izing   and   an   interference   with    those   rights    which 
free  citizens  should  have  in  a  civilized  country. 


NEW  YORK  METHOD  IN  1905 

On  July  20,  1905,  the  Legislature  of  the  state 
of  New  York  appointed  a  committee  "To  investigate 
and  examine  into  the  business  and  affairs  of  life  in- 
surance companies  doing  business  in  the  state  of  New 
York." 

Under  date  of  August  16,  1905,  the  committee 
addressed  a  circular  letter  "To  the  Life  Insurance 
Companies  doing  business  in  the  State  of  New  York" 
in  which  the  following  statement  is  made: 

"Ait  an  early  date  it  is  the  purpose  of  the  com- 
mittee to  request  specific  information  upon  certain 
subjects,  and  to  proceed  with  the  investigation.  In 
the  meantime  any  communications  from  you  embody- 
ing suggestions  which  may  tend  to  expedite  the  work 
of  the  committee  they  will  be  glad  to  receive." 

Under  date  of  November  18,  1905,  the  committee 
addressed  a  letter  to  companies  organized  in  some 
other*  state,  but  doing  business  in  New  York,  extracts 
from  which  are  as  follows : 

"Mr , 

"President    Life  Ins.   Co. 

"Dear  Sir: — In  the  course  of  the  investigation  by 
the  committee  of  the  Legislature  into  the  affairs  of  in- 
surance companies  doing  business  in  the  State  of 
New  York,  your  company  will  very  soon  be  reached. 
To  facilitate  our  inquiry  we  would  request  your  com- 
pany to  furnish  the  information  mentioned  below, 
the  list  being  practically  the  same  as  that  which  do- 
mestic companies  thus  far  examined  have  given." 

Following  this  were  numerous  questions  asking 
for  records  of  annual  meetings  and  meetings  of  direc- 
tors and  committees,  lists  of  various  securities,  state- 


152  LECTURES  ON  LIFE  INSURANCE 

ments  of  details  of  premiums,  death  claims,  surrender 
values,  dividends  and  many  other  items  concerning 
the  company's  methods,  both  in  its  investment  and 
insurance  departments.  Among  other  questions  were 
the  following: 

"Any  and  all  syndicate  agreements  entered  into 
by  the  company  or  any  officer  thereof,  relating  either 
to  the  underwriting  or  purchase  or  acquisition  of  any 
securities  during  the  past  ten  years." 

"List  of  all  contributions  to  political  campaign 
funds  for  ten  years  last  past,  and  payments  in  con- 
nection .with  legislation  in  any  state." 

The  letter  concluded  as  follows : 

"The  committee  will  be  greatly  obliged  if  these 
data  are  collected  and  sent  to  the  counsel  for  the 
committee  at  your  earliest  possible  convenience.  We 
shall  be  glad  to  receive  this  information  on  or  before 
November  25th.  The  exact  date  when  we  shall  desire 
the  attendance  of  yourself  and  your  actuary  we  shall 
apprise  you  of  a  day  or  two  in  advance.  It  will 
probably  be  shortly  after  November  25th. 

"Thanking  you  for  your  attention  to  these  .mat- 
ters, we  remain, 

"Very  truly  yours, 

"Chairman." 

Answers  to  these  letters  were  made  to  the  com- 
mittee. Their  report  is  contained  in  a  pamphlet  of 
442  pages.  But  one  company  outside  of  New  York  is 
referred  to  in  the  contents  of  the  report.  The  various 
abuses  which  were  discovered  are  set  forth  at  great 
length,  and  taking  these  as  a  basis  certain  legislation 
was  recommended. 

THREE  CLASSES  OF  COMPANIES 

Without  attempting  to  distinguish  between  those 
companies  whose  conduct  has  subjected  them  to  the 
criticism  of  all  right-minded  people,  and  those  whose 


LECTURES  ON  LIFE  INSURANCE  153 

record  has  been  one  of  a  faithful  observance  of  duty, 
the  life  insurance  companies  of  the  country  may,  for 
the  purposes  of  this  discussion,  be  divided  into  three 
classes : — 

First,  those  which  have  reached  a  size  where 
their  accumulated  funds  are  so  great  that  they  can- 
not be  safely  and  profitably  invested,  and  where  their 
business  is  so  vast  and  widely  scattered  that  a  greater 
volume  cannot  be  handled  efficiently  and  equitably  for 
producing  the  best  results. 

Second,  those  which  have  attained  sufficient  size 
and  strength  to  make  certain  the  fulfillment  of  all  obli- 
gations in  a  satisfactory  manner,  but  which  are  seek- 
ing to  extend  their  field  of  usefulness  for  the  benefit 
of  their  members  and  the  public  by  enlarging  pres- 
ent agencies  and  establishing  new  ones. 

Third,  those  which,  lately  organized,  have  not 
yet  reached  the  point  where  the  outstanding  business 
is  sufficiently  large  either  to  insure  permanence  or  to 
produce  reasonably  satisfactory  results,  although,  if 
carefully  managed,  they  may  develop  into  strong  and 
useful  institutions. 

Each  of  these  classes  it  is  apparent  should  receive 
careful  consideration  in  legislation,  and  these  dis- 
tinctions should  be  kept  in  mind  if  laws  are  to  be 
wise  and  enduring. 

It  is  probable  that  in  the  near  or  remote  future 
the  best  interests  of  the  general  public  will  be  served 
by  the  establishment  of  new  companies.  It  is  a  costly 
matter  to  organize  an  office  and  plant  agencies  before 
a  revenue  comes  in  which  will  place  such  a  company 
upon  a  sound  and  economical  basis,  even  if  the  great- 
est skill,  economy  and  honesty  are  to  be  found  in  the 
management. 

An  inflexible  law  limiting  expenses  to  meet  cer- 
tain arbitrary  and  theoretical  requirements  may  be  a 
wise  check  to  one  class  of  companies,  uncalled  for  but 
harmless  to  another,  and  destructive  to  still  another. 

AS  TO  MUTUAL  COMPANIES 

And  it  should  be  borne  in  mind,  particularly,  that 
a  mutual  life  insurance  company  has  no  money  except 


154  LECTURES  ON  LIFE  INSURANCE 

that  which  it  receives  from  its  policyholders ;  also  that 
this  money  is  paid  for  certain  well-defined  purposes, 
namely,  to  meet  policy  obligations  and  to  defray  the 
necessary  and  legitimate  expenses  of  conducting  the 
business.  When  a  person  accepts  a  position  in  the 
management  of  an  institution  of  this  character,  he  may 
reasonably  expect  a  fair  compensation  for  his  services, 
but  he  voluntarily  withdraws  from  those  pursuits 
where  great  pecuniary  rewards  are  possible.  It  is  not 
improper  that  the  use  of  these  moneys  should  be 
limited  by  law  to  the  purposes  for  which  they  are  in- 
tended by  those  who  contribute  and  own  them,  because 
the  actions  of  some  persons  are  regulated  largely  by 
the  fear  of  consequences. 

It  is  clear  that  whatever  laws  are  enacted  should 
have  a  certain,  definite  and  well-defined  principle,  as 
a  basis,  and  before  placing  statutes  upon  the  books, 
sufficient  time  should  be  taken  by  those  who  enact 
them  to  clearly  understand  not  one  side  of  a  question, 
but  all  sides.  The  faults  which  have  been  found  in  the 
administration  of  life  insurance  companies  should  not 
be  taken  as  the  sole  basis  for  new  laws.  Many  mutual 
life  insurance  companies  have  conducted  their  affairs 
for  the  sole  benefit  of  their  policyholders;  they  have 
furnished  to  them  sound  insurance  at  reasonable  cost ; 
they  have  extended  protection  to  those  who  needed  it, 
performing  a  service  to  the  public,  without  prejudicing 
the  rights  of  their  members;  they  have  invested  their 
funds  safely  and  profitably  without  any  personal  bene- 
fit to  their  officers ;  they  have  selected  their  business 
carefully  and  equitably.  Those  who  are  framing  laws 
should  consider  all  these  things  before  they  take  any 
action  which  may  do  damage  without  corresponding 
benefit. 

A  mutual  life  insurance  company  not  only  should 
treat  its  present  members  equitably  and  fairly,  but  it 
should  select  its  policyholders  in  such  a  .way  that  each 
shall  pay  a  fair  and  equitable  premium  for  the  risk 
incurred.  Mutuality  does  not  consist  alone  in  arbi- 
trary rates  and  an  exact  distribution  of  theoretical 
surplus.  No  law  can  compel  the  managers  of  a  mu- 
tual life  insurance  company  to  choose  members  from 


LECTURES  ON  LIFE  INSURANCE  155 

a  certain  class,  all  of  whom  are  in  exactly  the  same 
condition  as  to  their  prospects  of  longevity.  No  law 
can  be  made  which  will  result  in  the  investment  of 
money  at  high  rates  of  interest  without  incurring  any 
risk  of  loss.  No  law  should  be  made  which  removes 
reasonable  responsibility  from  the  managers  of  a  cor- 
poration. 

PUBLIC  OPINION 

Much  thought  has  been  given  to  the  matter  of 
the  control  of  mutual  life  insurance  companies,  and 
many  plans  have  been  devised  seeking  to  give  to  the 
owners  of  these  institutions  the  power  to  control  the 
management.  If  life  insurance  could  be  carried  on 
without  the  accumulation  of  assets,  the  temptation  to 
obtain  control  of  these  institutions  would  not  perhaps 
be  very  great,  but  the  nature  of  the  business  is  such 
that  large  amounts  of  property  are  necessarily  accumu- 
lated for  the  payment  of  obligations  running  into 
the  distant  future.  The  control  of  these  is  a  great 
temptation  to  those  who  could  make  use  of  them  for 
personal  advantage.  In  devising  schemes  for  policy- 
holders' participation  in  the  election  of  directors,  the 
dangers  of  improper  control  seem  to  be  lost  sight  of. 
Much  has  been  said  of  the  power  of  a  management 
to  perpetuate  its  hold  upon  the  institution.  To  those 
who  consider  this  question  carefully  and  in  a  broad 
way,  it  will  be  clear  that  a  change  in  the  management 
of  a  well-organized  and  honestly  and  skillfully  con- 
ducted mutual  life  insurance  company  might  be  about 
the  greatest  disaster  that  could  happen  to  its  policy- 
holders, and  to  prevent  this  is  as  much  the  duty 
of  the  managers  as  any  other  matter  -which  must 
be  considered  by  them.  The  changes  which  have 
recently  taken  place  in  the  management  of  certain 
life  insurance  companies  have  not  been  brought  about 
by  the  action  of  policyholders,  but  by  the  force  of  pub- 
lic opinion,  and  the  changes  which  occur  in  the  future, 
and  which  do  not  bring  with  them  great  perils,  will 
not  come  about  by  the  action  of  policyholders  them- 
selves,   but    by    the   opinion    of    right-thinking   men, 


156  LECTURES  ON  LIFE  INSURANCE 

whether  they  are  interested  in  these  institutions  or 
not. 

The  law  -which  was  at  first  proposed  by  the  com- 
mittee of  the  New  York  legislature  provided  for  the 
control  of  foreign  companies  in  many  ways,  but  upon 
a  careful  consideration  of  all  'the  questions  involved, 
it  was  so  modified  that  foreign  companies  are  not  af- 
fected by  its  provisions,  excepting  in  certain  matters 
which  have  to  do  with  the  expense  of  conducting  their 
business.  lit  is  clear  that  the  state  which  charters  a 
company  should  exercise  whatever  control  it  is  proper 
that  the  law  should  assume,  in  all  those  particulars 
which  have  to  do  with  its  government  and  its  manage- 
ment, excepting  so  far  as  a  foreign  state  shall  make 
requirements  for  fair  business  dealing  and  financial 
strength,  but  inasmuch  as  there  are  certain  principles 
in  this  act  which  are  being  considered  at  this  time, 
it  may  be  interesting  to  take  up  three  points  of  special 
importance. 

As  it  has  appeared,  the  peculiar  nature  of  life 
insurance!  makes  neoessary  large  accumulationis  of 
property.  These  must  be  managed  and  controlled  by 
somebody.  A  board  of  directors  must  be  chosen 
either  by  stockholders  or  policyholders.  Stock  can 
be  bought  and  sold,  acquiring  its  value  sometimes 
because  of  its  earning  capacity,  and  sometimes  because 
of  the  value  of  the  comtrol  of  property  which  its  own- 
ership carries  with  it.  No  way  has  yet  been  devised 
for  eliminating  the  dangers  to  policyholders  which 
are  always  present  in  a  stock  life  insurance  company. 

In  what  way  can  the  danger  of  abuses  in  a  mu- 
tual life  insurance  company  be  done  away  with  by 
law?  After  a  thorough  discussion  of  this  subject, 
the  Legislature  of  New  York  has  passed  an  act,  af- 
fecting of  course  only  companies  of  that  state,  which 
it  would  be  .wise  for  other  legislatures  to  consider  very 
carefully  before  enacting  any  similar  law.  The  pub- 
lication of  lists  of  policyholders  without  the  consent 
of  those  interested,  and  in  many  if  not  most  cases 
against  their  wishes,  may  lead  to  results  not  in  ac- 
cordance with  good  morals  or  the  best  interests  of 
those  persons  whose  future  the  state  is  bound  to  pro- 


LECTURES  ON  LIFE  INSURANCE  157 

tect.  Policyholders  will  need  leaders.  Some  will  be 
found  who  are  willing  to  give  their  time  and  money 
for  the  public  good,  but  the  question  may  well  be 
considered :  Who  will  be  most  likely  to  incur  the 
necessary  expense  and  for  what  purpose?  No  law 
should  be  passed  which  may  bring  greater  dangers 
than  those  which  it  seeks  to  avert.  Publicity  and  a 
strict  accountability  to  the  public  officials,  appointed 
by  the  various  governments  to  inform  the  people  of 
the  conduct  of  the  corporations  conning  under  their 
observation,  will  protect  the  interests  of  policyholders 
far  more  effectually  than  any  of  the  plans  which 
have  been  devised  for  controlling  these  companies. 


STANDARD  POLICIES  AND  EXPENSES 

The  question  of  standard  policies  is  one  which 
has  received  much  attention,  and  many  have  argued 
that  inasmuch  as  fire  insurance  companies  have  been 
compelled  to  issue  certain  prescribed  forms  of  con- 
tracts, similar  requirements  might  result  in  benefit 
to  the  community  if  applied  to  life  insurance.  The 
cases  are  very  dissimilar,  for  reasons  which  it  is  not 
neoessary  to  detail.  The  development  of  life  insur- 
ance has  brought  about  many  different  plans  for 
meeting  the  varied  needs  of  those  who  seek  life  insur- 
ance as  a  protection  for  various  persons  under  many 
dissimilar  conditions.  It  may  well  be  asked  at  the 
outset,  then,  whether  there  is  a  condition  of  things 
which  demands  a  standard  policy.  Have  people  been 
deceived  by  the  wording  of  these  contracts  to  such  an 
extent  as  to  require  the  intervention  of  the  law?  If 
this  is  the  case,  then  the  best  talent  obtainable  should 
be  employed  to  arrange  for  the  proper  protection  of 
the  public.  It  is  not  too  much  to  say  that  this  talent 
is  now  to  be  found  in  the  offices  of  the  companies.  If 
after  the  excitement  has  subsided  it  should  appear 
that  no  real  need  exists,  it  is  clear  that  the  govern- 
ment should  not  interfere  in  the  proper  exercise  of 
the  right  of  contract. 

The  provision  of  the  New  York  law  which  ha.s 


158  LECTURES  ON  LIFE  INSURANCE 

attracted  the  most  attention  is  that  which  limits  the 
expenses  of  all  companies  doing  business  in  that  state. 
Much  can  be  said  in  its  favor,  especially  as  it  applies 
to  the  companies  coming  within  the  first  two  classes 
already  mentioned,  but  whether  the  regulation  is  wise 
or  not  will  be  decided  by  those  who  study  it  out,  ac- 
cording to  their  views  of  life  insurance — what  it 
does  and  what  it  can  do.  If  it  is  proper  that  laws 
should  regulate  the  details  of  the  existing  companies 
solely  for  the  benefit  of  present  policyholders,  many 
arguments  may  be  advanced  why  the  expenses  of  the 
various  companies  should  be  limited  by  law.  If  on 
the  other  hand  life  insurance  performs  a  public  ser- 
vice, if  it  is  for  the  benefit  of  the  state  that  people's 
lives  should  be  insured,  if  the  spread  of  this  business 
encourages  tihrift,  brings  to  the  people  a  greater 
realization  of  the  duty  they  owe  to  others,  and  espe- 
cially the  obligations  of  marriage,  if  the  distribution  of 
life  insurance  payments  curtails  the  public  expendi- 
tures to  prevent  crime  and  to  care  for  the  unfortunate, 
then  it  may  well  be  carefully  considered  whether  any 
laws  should  be  enacted  which  would  result  in  a  check 
to  the  spread  of  this  business. 


GOOD  NOT  TO  BE  LOST  SIGHT  OF 

It  has  been  said  that  life  insurance  is  a  business 
and  not  a  missionary  enterprise,  wThich  is  true  to  the 
same  extent  that  it  might  be  said  of  savings  banks, 
but  both  classes  of  institutions  serve  the  public  in 
other  than  business  ways,  and  if  they  are  valuable 
agents  in  improving  the  general  condition  of  the  peo- 
ple, while  the  public,  money  should  not  be  spent  in 
maintaining  or  developing  them,  it  is  clear  that  the 
law  should  not  impose  restrictions  upon  them  except- 
ing such  as  may  be  necessary  for  the  protection  of 
depositors  in  one  and  of  policyholders  in  the  other. 
No  law  can  be  wise,  fair  and  useful  unless  it  is  based 
on  facts,  and  unless  its  framers  have  a  comprehensive 
and  well-founded  knowledge  of  all  the  circumstances 
which  make  it  necessary.  No  such  law  should  rest 
on  the  theorv  that  all  life  insurance  companies  have 


LECTURES  ON   LIFE  INSURANCE  159 

been  conducted  dishonestly,  extravagantly  or  igno- 
ranitly,  because  certain  officials  of  certain  companies 
have  been  shown  to  have  been  guilty  of  all  these 
offenses.  Much  good  has  been  done  by  each  and  every 
one  of  these  companies.  Many  similar  institutions 
have  been  free  from  all  of  these  elements,  and  have 
been  conducted  for  the  benefit  of  their  policyholders. 
The  evils  which  have  been  discovered  and  ex-posed 
have  been  made  much  of  by  ithe  newspapers,  and  by 
well-meaning  men,  but  the  good  has  been  lost  sight 
of,  in  a  measure  at  least,  and  has  not  had  its  proper 
influence  in  shaping  public  opinion  and  enacting  laws. 
If  we  can  discover  the  facts,  right-minded  men  will 
not  go  far  astray  in  making  laws,  although  there 
may  be  honest  differences  of  opinion  as  to  the  general 
subject  of  life  insurance.  Most  of  those  who  have 
spent  their  lives  in  observing  the  operations  of  life 
insurance  companies  believe  that  the  institution  has 
been  a  great  force  in  educating  the  public,  bringing 
them  to  the  realization  of  their  responsibilities  and 
saving  the  governments  of  states  and  municipalities 
from  much  of  the  expense  arising  from  crime  and 
poverty. 

It  cannot  be  doubted  that  life  insurance  cannot 
be  generally  spread  among  .the  people,  excepting 
through  the  work  of  agents.  No  life  insurance  com- 
pany can  accept  all  applicants  and  live,  nor  can  it  do 
equity  among  its  members  without  making  sure  that 
they  are  practically  on  an  equal  footing  as  to  their 
prospects  of  longevity,  and  therefore  will  contribute 
their  reasonable  share  of  the  funds  necessary  to  meet 
policy  obligations.  A  savings  bank  need  not  inquire 
about  the  health  of  the  depositors,  but  a  life  insurance 
company  must  ask  many  questions  about  personal  and 
family  history,  and  must  cause  an  examination  to  be 
made  of  the  applicant.  These  things  cannot  and  will 
not  be  done  excepting  through  agents  who  understand 
the  necessities  of  the  business.  Wealthy  men  seeking 
to  benefit  their  fellowmen  have  not  yet  devoted  them- 
selves to  soliciting  life  insurance  without  compensation 
for  the  good  that  it  will  bring  to  the  individual  and  to 
the  state,  although  some  of  them  perhaps  might  ac- 


160  LECTURES  ON  LIFE  INSURANCE 

complish  great  good  in  this  way.  The  life  insurance 
agent  must  have  a  living,  and  the  policyholder  must 
support  him  if  the  business  is  to  be  widely  extended. 

No  matter  what  one's  views  may  be  on  this  sub- 
ject, it  will  not  be  denied  that  companies  should  be 
held  to  a  strict  accountability,  should,  so  far  as  possi- 
ble, be  required  to  be  financially  able  to  meet  their 
obligations.  If  the  sentiment  just  described  is  sound, 
however,  then  these  companies  should  be  left  to  their 
own  judgment ;  they  should  not  be  taught  to  rely  upon 
rules  set  forth  from  time  to  time  by  laws  which  of 
necessity  are  enacted  by  those  who  know  but  little  of 
the  principles  of  the  business.  The  best  results  to  the 
public,  and  for  that  growth  of  private  virtue  which  is 
so  desirable,  will  come  from  placing  responsibility 
upon  individuals  who  are  supposed  to  carry  it,  and 
in  requiring  public  officials  to  be  sure  that  the  laws  are 
observed.  Too  many  laws  are  worse  than  too  few. 
Condemnation  of  wrong  wherever  it  is  found  to  exist 
is  useful,  but  undeserved  censure  is  disheartening.  A 
man  with  a  muck  rake  with  his  eyes  eagerly  scanning 
the  low  places  is  an  important  member  of  an  investi- 
gating committee  or  a  legislative  body,  but  at  his 
side  should  be  one  who  sees  the  fields  whose  crops  sup- 
port life  and  whose  flowers  uplift  and  beautify  it. 


A  PLEA  FOR  DECENCY 


(In  the  Insurance  Journal) 


H  HE  business  of  life  insurance  is  as  honorable  an 
*  occupation  as  a  gentleman  can  engage  in.  The 
officer  who  dictates  the  policy  of  a  company  or  invests 
its  funds,  the  clerk  who  performs  the  detail  work  in  the 
office,  the  general  agent  who  supervises  the  collection 
of  premiums  and  the  placing  of  policies,  and  the  solici- 
tor who  urges  upon  the  public  the  need  of  life  insur- 
ance and  the  merits  of  his  company,  all  contribute  to 
the  general  cause.  Each  one  is  dependent  upon  the 
other,  and  no  distinction  can  fairly  be  made  between 
them  so  far  as  the  character  of  their  occupation  is 
concerned.  Surely  any  one  in  any  way  connected 
with  this  business  should  remember  that  he  is  a  gen- 
tleman, and  conduct  his  business  as  befits  the  char- 
acter of  a  gentleman. 

There  is  every  reason  why  this  most  honorable 
business  should  be  conducted  on  a  high  plane,  and 
should  command  the  unreserved  respect  of  the  public. 
And  yet  in  the  minds  of  many  there  seem  to  be  doubts 
as  to  the  purposes  which  animate  the  actions  of  those 
who  conduct  the  fortunes  of  the  life  insurance  com- 
panies. These  feelings  find  expression  in  the  un- 
friendly attitude  of  some  newspapers,  a  prejudice 
which  frequently  exists  against  the  institution  in  the 
courts,  and  the  laws  which  are  enacted  by  the  various 
state  legislatures.  The  reason  for  this  hostility  can 
be  traced  in  part,  no  doubt,  to  the  thoughtless  and 
unreasoning  prejudice  against  corporations  control- 
ling large  amounts  of  money;  but  there  are  other 
causes  tor  which  life  insurance  men  themselves  are 
directly  and  definitely  responsible. 

A  need  which  can  be  filled  in  no  other  way  exists 
for  life  insurance,  and  the  agent  naturally  and  prop- 
erly emphasizes  this  in  the  course  of  his  daily 
occupation.  This  argument,  properly  presented, 
should  elevate  the  business  and  inspire  confidence  in 


162  LECTURES  ON  LIFE  INSURANCE 

it.  The  agent,  furthermore,  represents  the  merits  of 
his  own  company,  and  explains  how  its  particular 
forms  of  policies  will  meet  the  peculiar  needs  of  the 
person  whom  he  urges  to  become  an  applicant  for 
insurance.    But  he  does  not  always  stop  here. 

A  letter,  from  which  were  taken  the  following 
extracts,  was  recently  addressed  by  the  general  agent 
of  a  great  company  to  a  man  who  was  being  urged  by 
an  agent  in  his  employ,  and  one  representing  another 
company,  to  take  a  policy  on  his  life. 

"At  the  request  of  Mr.  ,  I  desire  to  state 

very  briefly  the  points  of  advantage  of  the  A  company 
in  comparison  with  the  B  company.  First  of  all,  the 
B  company  has  been  for  a  good  many  years  under  a 
cloud,  and  serious  anxiety  was  felt  for  its  safety; 
and  while  now  I  think  that  anxiety  has  been  removed, 
and  its  present  managers  are  doing  all  they  can  for 
it,    .    .    . 

"This  arises  from  the  fact  that  a  much  larger  part 
of  their  insurance  is  paid  up,  and  brings  no  income,  by 
reason  of  their  members  getting  discouraged  or  dis- 
gusted, and  taking  paid-up  insurance,    .     .     . 

"A  firm  in  liquidation  may  have  more  of  its  money 
in  hand  than  one  in  active  business,  but  may  be,  and 
generally  is,  a  very  weak  concern.     .    .     . 

"This  will  be  your  money  loss,  besides  a  far 
inferior  company.  If  you  feel  justified  in  making  this 
loss  to  promote  the  interest  of  your  friend,  of  course 
that  is  a  matter  for  you  to  decide." 

The  gentleman  to  whom  this  letter  was  addressed 
took  his  insurance  in  the  B  company,  no  doubt  reason- 
ing that  the  agent  who  would  make  false  statements  to 
bring  disrepute  upon  a  strong  and  prosperous  institu- 
tion, which  the  B  company  unquestionably  is,  would 
not  hesitate  to  falsify  the  figures  which  he  represented 
in  favor  of  his  own  company. 

This  is  not  given  as  an  exceptional  or  by  any 
means  an  extreme  case,  but  it  is  a  fair  sample  of  the 
methods  which  are  often  practiced  in  the  business. 
Whether  or  not  the  course  is  successful  in  an  indi- 
vidual case,  it  does  not  end  there;  for  a  seed  is  sown 
which  sprouts  and  bears  the  fruit  which  might  fairly 


LECTURES  ON  LIFE  INSURANCE  163 

be  expected.  The  popular  mind  is  disturbed,  and  dis- 
credit and  doubt  are  cast  upon  all  life  insurance,  for 
the  man  to  whom  such  statements  are  made  will  pres- 
ently come  to  think  that  the  whole  structure  is  built 
upon  frail  foundations. 

Sound  business  rests  upon  honorable  methods, 
upon  truth,  upon  decency,  and  that  company  which 
is  to  be  permanently  successful  will  tolerate  no  one  in 
any  department  who  will  under  any  circumstances,  and 
for  any  gain,  either  permanently  or  temporarily,  act 
the  part  of  a  blackguard. 


LETTER  TO  AN  INSURANCE  COMMISSIONER 


December  20,  1906. 


Dear  Sir : — In  a  recent  conversation  with 


he  suggested  that  I  should  write  you  express- 
ing some  opinions  which  I  hold  on  the  subject  of 
deposits  by  life  insurance  companies  in  various  states, 
and  it  is  for  this  reason  that  I  venture  to  communicate 
to  you  some  thoughts  which  I  expressed  to  him. 

This  matter  must  be  viewed  from  two  stand- 
points— first,  that  of  the  company  affected  by  any 
requirement  of  this  kind,  and  second,  that  of  the 
state  whose  representatives  propose  it. 

First:  A  mutual  life  insurance  company  is 
organized  and  conducts  its  business  for  the  sole  pur- 
pose of  furnishing  sound  insurance  to  its  members 
in  an  equitable  manner,  and  at  as  low  a  cost  as  is 
consistent  with  safety.  All  the  policyholders  should 
be  on,  an  equality  not  only  as  to  rates  and  dividends, 
but  also  as  to  personal  conditions  and  prospects  of 
longevity.  To  accomplish  the  best  results  the  mem- 
bership should  be  drawn  from  a  considerable  terri- 
tory and  great  care  should  be  used  that  strict  equality 
is  preserved  in  selection  of  risks,  to  the  end  that  no 
one  member  shall  get  more  for  his  money  in  the  shape 
of  insurance  risk  than  another,  and  especial  care 
must  be  used  that  these  risks  are  of  a  character  which 
will  not  experience  even  in  the  distant  future  a  mor- 
tality greater  than  that  provided  for  in  the  tables 
upon  which  the  business  is  based. 

The  funds  of  such  an  institution  should  be 
invested  in  the  most  careful  manner  possible,  that 
losses  shall  not  be  such  as  to  imperil  the  financial 
strength  at  any  time  even  in  the  distant  future.  Life 
insurance  premiums  are  based  upon  the  receipt  of 
some  fixed  rate  of  interest,  and  some  of  the  policies 
now  being  issued  will  still  be  in  force  from  half  to 
three-quarters  of  a  century  hence.  Such  a  company's 
investments   must,  therefore,  be  made  at  a   rate  of 


LECTURES  ON  LIFE  INSURANCE  165 

interest  which  will  certainly  be  more  than  that 
assumed,  after  making  due  allowance  for  investment 
expenses  and  losses.  Restrictions  as  (to  where  and 
how  these  funds  shall  be  invested  may  serve,  there- 
fore, to  either  imperil  the  principal  or  reduce  the  rate. 

A  mutual  life  insurance  company  should  have  no 
preferred  class  of  policyholders.  It  should  be  managed 
from  a  central  office,  to  which  every  member  should 
look  for  the  carrying  out  of  his  contract  not  only  in 
the  letter  of  its  actual  terms,  but  with  the  most  favor- 
able results  possible.  Its  funds  should  always  be  held 
available  for  all  its  policyholders,  and  it  cannot  place 
various  properties  in  the  hands  of  public  officials  at 
different  points  without  inconvenience,  expense  and 
possible  loss.  With  laws  requiring  the  deposit  or 
investment  of  reserves  in  states  whose  citizens  con- 
tribute them,  it  is  not  easy  to  see  how  any  mutual 
life  insurance  company  could  do  a  general  business 
throughout  the  country  with  a  due  regard  to  the  best 
interests  and  rights  of  all  its  policyholders. 

This  company  has  for  many  years  enjoyed  a  high 
rate  of  interest.  Among  other  investments  we  now 
have  more  than  8,000  mortgage  loans  in  many  differ- 
ent states,  and  the  past  three  years  there  has  been 
but  one  foreclosure.  Our  policyholders  have  enjoyed 
the  favorable  results  accruing  from  these  investments, 
which  have  been  made  as  the  result  of  the  study  and 
experience  of  the  mortgage  loan  business  for  the  past 
forty  or  fifty  years. 

It  has  been  urged  that  life  insurance  companies 
concentrate  wealth  and  deprive  one  section  of  money 
for  the  benefit  of  another,  and  especially  of  those 
places  where  the  home  offices  are  situated.  I  do  not 
think  that  this  is  well  founded.  This  company  has 
been  doing  business  in  Connecticut  for  fifty-five  years 
and  has  a  large  amount  of  insurance  outstanding  on 
the  citizens  of  this  state.  Our  mortgage  loans  on 
property  in  Connecticut  have  never  been  over  $150,000, 
and  now  amount  to  $105,000,  and  we  have  not  made 
a  single  new  loan  for  a  good  many  years.  We  have 
no  state,  city  or  municipal  bonds  in  New  England, 
and  it  is  our  settled  policy  to  invest  the  company's 


166  LECTURES  ON  LIFE  INSURANCE 

money  where  it  will  be  safest  and  produce  the  best 
return.  In  some  states  our  investments  are  far  greater 
than  the  reserve  on  policies;  in  many  they  are  much 
less,  but  we  feel  that  legal  requirements  as  to  the 
places  in  which  we  shall  do  this  business  would  ham- 
per us  and  result  in  loss  to  our  policyholders.  For 
these  and  other  reasons,  it  is  clear  to  me  that  our 
members  will  fare  best  if  there  are  no  restrictions 
as  to  where  our  investments  shall  be  made  and  -where 
our  scurities  shall  be  deposited. 

Second :  While  these  considerations  may  be  well 
founded  from  our  standpoint,  I  recognize  that  they 
may  not  of  necessity  control  the  action  of  a  legislature 
seeking  to  serve  its  own  people,  unless  reasons  can 
be  advanced  why  the  interests  of  the  company  and 
the  state  can  both  be  guarded. 

I  am  firm  in  my  conviction  that  it  is  best  for 
any  community  that  life  insurance  should  be  spread 
among  its  people,  for  I  believe  that  their  character 
will  be  elevated,  that  they  will  be  better  citizens,  and 
that  the  public  expense  of  jails,  almshouses  and  orphan 
asylums  will  be  diminished  as  life  insurance  is  spread 
abroad,  and,  therefore,  that  the  companies  honestly 
furnishing  sound  insurance  should  be  encouraged, 
and  should  not  be  regarded  in  any  way  as  enemies  of 
the  state  and  its  people  but  rather  as  their  friends. 
It  is  true  that  some  portion  of  the  premiums  paid  by 
the  public  go  out  of  the  state,  but  it  is  best  to  remem- 
ber that  by  far  the  greater  part  of  these  payments  are 
returned  from  time  to  time  or  .will  be  in  the  future, 
excepting  of  course  those  portions  which  are  used 
in  the  necessary  expenses  of  conducting  a  home  office 
which  cannot  be  avoided  in  any  way.  Moreover,  it 
seems  to  me  well  to  consider  whether  laws  can  be 
made  which  will  affect  the  general  supply  and  demand 
of  money,  and  -which  will  in  the  end  benefit  any  state 
adopting  them.  Capital  seeks  investment  where  it 
can  get  good  security,  and  the  best  rate  of  interest. 
It  is  possible  that  a  state  may  compel  certain  corpora- 
tions to  invest  certain  moneys  within  its  borders,  but 
this  will  create  a  fictitious  condition  of  affairs  which 


LECTURES  ON  LIFE  INSURANCE  167 

will  not  be  permanent  and  which  will  not  work  to  the 
advantage  of  the  commonwealth. 

I  fear  that  much  of  the  sentiment  which  has 
brought  about  these  suggestions  of  special  deposits 
and  other  ideas  has  sprung  from  the  disclosures  of 
wrong  doing  in  life  insurance  companies,  but  I  con- 
tend that  this  feeling  should  not  have  any  weight 
whatever  in  a  question  of  this  kind. 

It  is  proper  to  make  laws  regulating  the  affairs 
of  corporations,  imposing  penalties  for  wrong  doing, 
requiring  publicity,  but  the  great  question  affecting 
investments  should  not  be  considered  in  any  way 
excepting  upon  a  broad  reasoning  and  upon  the 
assumption  that  a  mutual  life  insurance  company  per- 
forms a  service  to  the  public. 

Very  truly  yours, 

John  M.  Holcombe, 

President. 


THE  MONEY  VALUE  OF  A  HUMAN  LIFE 


{In  the  North  American  Review) 


[HAT  which  we  call  a  human  life  has  always 
been  recognized  as  having  to  its  possessor, 
and  perhaps  to  others  by  reason  of  affection,  a  para- 
mount and  immeasurable  value.  That  it  may  have 
also  a  money  value  has  been  acknowledged  in  various 
ways,  notably  in  the  institution  of  slavery.  From 
early  times  the  ownership  of  the  services  of  a  human 
being  has  had  a  worth  in  accordance  with  the  excess 
of  earnings  obtainable  above  the  necessary  cost  of 
subsistence.  This  value  has  not  usually  been  com- 
puted with  accuracy  in  each  individual  case,  but  in 
a  general  way  a  price  has  been  fixed  for  a  slave, taking 
into  consideration  his  age,  physical  condition,  and 
capacity  for  the  kind  of  service  desired  of  him. 

It  is  clear,  however,  that  certain  important 
elements  are  either  wholly  lacking  or  but  partially 
developed,  in  the  case  of  the  life  of  a  person  held 
in  bondage,  which  may  be  present  if  the  possessor 
of  the  life  is  free  and  independent.  Self-interest, 
ambition,  and  family  ties  are  needed  to  develop 
the  highest  value  of  a  human  life,  and  it  is  my  pur- 
pose to  show  that  such  a  life  has  qualities  which 
may  impart  to  it  a  worth  as  real  and  as  ascertainable 
as  that  of  other  property. 

In  the  markets  of  the  world,  that  which  is 
commonly  known  as  property  depends  for  its  value 
upon  what  can  be  obtained  from  it  over  and  above 
the  cost  entailed  by  its  possession.  Sometimes  this 
surplus  is  sure  and  constant;  sometimes  it  is  uncer- 
tain and  fluctuating,  and  sometimes  it  is  wholly 
prospective.  In  fixing  the  price  all  these  qualities 
will  be  considered,  and  the  result  will  rest  upon  a 
combination  of  probabilities.  The  purchaser  of 
a  business  block,  for  example,  will  calculate  the 
rentals  on  the  one  hand,  and  the  taxes,  repairs,  and 


LECTURES  ON  LIFE  INSURANCE  169 

necessary  expenditures  on  the  other.  The  re- 
mainder will  show  upon  what  sum  as  a  principal  this 
will  offer  a  fair  return  as  compared  with  other  in- 
vestments. But  this  is  not  all,  nor,  indeed,  is  it 
the  most  important  consideration.  If  the  building 
is  composed  of,  or  surrounded  by,  inflammable 
materials,  so  that  the  hazard  of  its  destruction  by 
fire  is  great,  its  value  will  be  seriously  and  unfavor- 
ably affected.  It  is  true  that  institutions  have  been 
organized  to  distribute  such  losses,  but  as  the  proper- 
ty-owner must  pay  for  protection  his  full  share 
of  the  risk,  which  will  be  accurately  and  intelli- 
gently estimated,  the  value  which  his  building  would 
have,  were  it  not  for  this  hazard,  will  be  diminished 
by  just  the  chance  of  that  contingency.  The  pre- 
sent condition  of  the  structure,  viewed  in  the  light 
of  natural  decay  and  its  adaptability  to  the  needs 
of  the  location  and  times,  will  demand  intelligent 
discrimination. 

The  amount,  therefore,  which  an  investor 
will  pay  for  the  block  will  be  determined  by  his  knowl- 
edge of  what  it  now  produces  and  his  estimate 
both  of  what  it  will  yield  in  the  future  and  the  time 
when,  either  by  gradual  deterioration  or  by  sudden 
accident,  it  will  become  unable  to  afford  an  income. 
If  there  can  be  obtained  from  it  more  than  will  suffice 
to  meet  necessary  expenditures,  then  the  property 
has  an  actual  value  which  will  vary  according  to 
the  estimate  that  may  be  made  of  its  future.  That 
neighborhood  which  to-day  attracts  business  by 
the  elegance  of  its  buildings  or  its  nearness  to  lines 
of  travel  or  transportation  may  to-morrow  be  swept 
by  fire  or  damaged  by  changes  in  modes  of  con- 
veyance. No  human  foresight  can  provide  with 
certainity  for  these  contingencies,  but  the  general 
future  of  a  section  is  estimated  by  the  careful  student 
of  the  laws  underlying  commercial  transactions, 
with  an  accuracy  which,  on  the  whole,  enables  him 
to  reap  the  profits  that  legitimately  belong  to  high 
intelligence.  In  the  change  of  ownership  the  pur- 
chaser thinks  that  he  is  receiving  more  than  an 
equivalent  for  his  money;  else  he  would  not  buy. 
The    seller   differs   as   to   the   probable   future,    and 


170  LECTURES  ON  LIFE   INSURANCE 

believes  that  what  he  now  receives  will  be  of  greater 
value;  otherwise  he  would  retain  his  possession.  The 
result,  in  almost  any  particular  transaction,  will 
show  that  one  or  the  other  has  materially  erred  in 
his  estimate,  but,  as  a  whole  real  estate,  or  any 
other  property  which  is  valued  for  its  income,  will 
be  found  to  conform  to  the  general  law  which  governs 
the  value  of  money. 

Can  human  lives  possess  attributes  which 
will  give  to  them  real  values?  It  would  not  be 
difficult  to  enumerate  many  lives  which  cannot  be 
considered  of  any  pecuniary  worth,  because,  for 
various  reasons,  they  produce  nothing,  Such  are 
those  of  the  very  old,  the  imbeciles,  and  the 
confirmed  invalids.  But  our  purpose  is  to  show 
that  a  life  surrounded  by  fairly  supposable  circum- 
stances, such  as  exist  in  every  community,  has  a 
definite  value. 

Every  man  who  earns  or  produces  more  than 
suffices  for  his  actual  personal  expenses  is  of  pe- 
cuniary value  to  some  one  besides  himself.  It  may 
be  that  a  family  is  dependent  upon  him  for  support, 
or  he  may  accumulate  his  surplus  income  for 
the  benefit  of  heirs  or  charity.  No  matter  what 
the  purpose  is,  there  is  a  value  to  someone  in  his 
services.  Suppose  he  has  earned  $2,000  during 
the  year,  and  his  food,  clothing,  shelter,  and  other 
strictly  personal  expenditures  have  amounted  to 
$500.  Then  clearly  he  has  been  of  the  value  of 
$1,500  to  someone  during  that  time.  We  can 
measure  the  value  of  the  years  which  have  passed. 
Can  we  estimate  with  accuracy  those  which  are  to 
come? 

Careful  observations,  extending  over  many 
years,  in  widely-separated  countries  and  among 
various  nations,  have  demonstrated  that  the  mor- 
tality of  the  human  family  is  governed  by  a  law 
which  is  constant  in  its  operation.  That  inevitable 
power,  death,  working  through  its  numberless 
agencies,  by  disease,  accident,  and  violence,  and 
seeming  to  seek  its  victims  by  chance,  is  ruled  by 
an  intelligence  which  preserves  the  balance  of  popu- 
lation, directs  the  laws  of  supply  and  demand,  and 


LECTURES  ON   LIFE  INSURANCE  171 

renders  possible  the  various  calculations  upon  which 
the  commerce  of  the  world  is  based. 

The  most  extensive  compilations  of  statis- 
tics, and  the  most  precise  calculations  which  have 
been  made  in  search  of  the  law  of  mortality,  are 
those  derived  from  investigations  among  what  are 
known  as  selected  lives  or  those  which  are  unim- 
paired by  hereditary  taint,  and  are  found  by  the 
examination  of  physicians  to  be  practically  free 
from  disease.  A  mortality  table  was  constructed 
in  1843  from  careful  observations  among  a  large 
number  of  such  lives  whose  course  could  be  ac- 
curately traced,  and  numerous  more  recent  investi- 
gations have  served  to  confirm  the  substantial 
correctness  of  the  death-rate  which  was  then 
shown  to  exist. 

Let  us  suppose  that  the  man  whose  surplus 
earnings  are  $1,500  a  year  is  thirty  years  of  age  and 
in  good  health,  and  that  money  is  worth  4  per  cent, 
per  annum.  By  the  mortality  table,  to  which  allu- 
sion has  been  made,  the  present  value  of  the  future 
surplus  earnings  of  this  life  is  $25,560. 

It  is  true  that  this  value  is  based  on  aver- 
ages, and  that  the  assumption  that  he  will,  through 
his  life,  receive  and  spend  just  the  amounts  here 
set  down  will  not  probably  be  realized.  It  is  well- 
nigh  certain  that  his  death  will  occur  either 
before  or  after  the  date  here  fixed.  Disease  or 
accident  may  rob  him  permanently  of  his  pro- 
ductive power.  Circumstances  which  no  skill 
guided  by  research  can  calculate,  and  no  judgement 
foretell,  may  change  the  current  of  his  life,  and 
enhance  or  diminish  the  values  of  his  efforts. 
And  yet  this  value  rests  upon  a  foundation  composed 
of  elements  no  more  uncertain  than  those  which 
determine  the  worth  of  the  business  block.  Both 
the  building  and  the  life  are  constantly  exposed  to 
the  danger  of  destruction,  but  that  chance  can  be 
measured  even  more  accurately  in  the  latter  case 
than  in  the  former. 

The  natural  ability  of  one  man  is  greater  than 
that  of  another,  and  this  advantage  will  be  shown 
in    the    value    of   their   respective    services.     These 


172  LECTURES  ON  LIFE  INSURANCE 

qualities,  as  well  as  those  of  industry  and  perseverance 
are  inborn  traits,  and  will,  considered  in  connection 
with  education  and  training,  determine  the  amount 
for  which  the  possessor  can  lease  his  efforts  to  others 
or  employ  them  for  independent  profit.  What 
nature  has  done  for  the  man  corresponds  with  the 
location  of  the  building.  What  experience  has 
taught  him  is  like  the  quality  of  the  structure. 
In  each  case  there  are  certain  necessary  expenditures 
which  must  be  met  before  any  real  value  can  exist, 
and  in  each  case  the   worth  rests  upon  estimates. 

Calculate    the    value     of    your     life     from    the 
following  table: 

Present  value   of  future   surplus   earnings   of  $1,000   a  year 

at  different  ages. 

Age  20,  $18,451. 00  Age  36,  $15,948.00  Age  52,  $11,884.00 


21, 

18,329.00 

37, 

15,744.00 

53, 

11,585.00 

22, 

18,204.00 

38, 

15,534.00 

54, 

11,283.00 

23, 

18,075.00 

39, 

15,317.00 

55, 

10,978.00 

24, 

17,941.00 

40, 

15,093.00 

56, 

10,670.00 

25, 

17,803.00 

41, 

14,861.00 

57, 

10,359.00 

26, 

17,660.00 

42, 

14,621.00 

58, 

10,046.00 

27, 

17,512.00 

43, 

14,374.00 

59, 

9,731.00 

28, 

17,360.00 

44, 

14,119.00 

60, 

9,415.00 

29, 

17,202.00 

45, 

13,857.00 

61, 

9,098.00 

30, 

17,040.00 

46, 

13,590.00 

62, 

8,780.00 

31, 

16,872.00 

47, 

13,317.00 

63, 

8,464.00 

32, 

16,698.00 

48, 

13,039.00 

64, 

8,149.00 

33, 

16,520.00 

49, 

12,757.00 

65, 

7,835.00 

34, 

16,335.00 

50, 

12,470.00 

35, 

16,144.00 

51, 

12,179.00 

The  Phcenix  Mutual  Life  Insurance 
Company,  of  Hartford,  Conn.,  undisturbed  by 
financial  panics  and  with  ample  resources  to  meet 
promptly  all  obligations,  offers  to  assume  the  risk 
of  this  loss. 

Will  you  compel  those  dependent  upon  you 
to  bear  a  burden,  from  which  you  can  easily  and 
completely  relieve  them? 


14  DAY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWED 
LOAN  DEPT. 

This  book  is  due  on  the  last  date  stamped  below,  or 

on  the  date  to  which  renewed. 

Renewed  books  are  subject  to  immediate  recall. 


"m 


r- 


r/X 


— *■=■ 


■miaaiw 


4 


4it 


a 


^CL 


£ 


Si 


TT 


ft. 


-fit 


CO 


Hr 


Ul 


> 


BEC.CIR.OCT  30 


•3 


LD  21A-50m-8,'57 
(C8481sl0)476B 


7%.*% 


General  Library 

University  of  California 

Berkeley 


